Bayer agrees $7.6bn sale of animal health business to Elanco

Bayer has agreed to sell its animal health unit to sector specialist Elanco for $7.6 billion (€6.8 billion), as the German pharmaceuticals and chemicals group sells off assets in the face of mounting legal claims linked to its disastrous $63bn acquisition of Monsanto.

The proposed deal will create the second-biggest player in the animal medicines sector by revenues, leapfrogging Merck and Boehringer Ingelheim, but remaining behind Zoetis, the industry leader that was spun out of Pfizer in 2013.

Bayer is to be paid $5.32 billion, or 70 per cent of the total, in cash, with the remaining $2.28 billion made up of Elanco shares.

The US pet and livestock drug specialist said on Tuesday that the deal would push its gross debt to roughly five times adjusted earnings before interest, tax, depreciation and amortisation, after taking into account cost cuts that it plans to make through the acquisition.

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For Bayer, the sale comes as it restructures to lower costs and offload assets in an effort regain investor confidence following the Monsanto acquisition, which has left it facing allegations that Roundup, a weed killer containing glyphosate, causes cancer. The group has lost all three cases that have come to trial over the past year, and faces an additional 18,400 claims in US courts.

Bayer, which faces the possibility of having to pay billions of dollars in compensation, has lost a third of its market value since the middle of last year. It now has a market capitalisation of €61.7 billion.

The sale of the animal health unit follows that of its Coppertone sun protection business for $550 million in May and Dr Scholl’s, which makes foot care products, for $585 million last month.

Roundup settlement

The purpose of the sale was twofold, said Sebastian Bray, an analyst at Berenberg. “The first is reducing investor concerns around leverage and enabling the balance sheet to withstand whatever settlement comes out of the glyphosate cases. The second is enabling it to build out in pharmaceuticals.”

The unit sells veterinary drugs for both pets and livestock, including the best-selling Advantage treatment for fleas and ticks. Its sale, which was initially announced by Bayer in November, had prompted interest from private equity groups, including London-based BC Partners and Luxembourg’s CVC Capital Partners.

The Elanco deal, which is expected to close in the middle of next year, means the group now has agreements in place for all its planned divestments, leaving it to focus on its legal battles. It faces its next Roundup trial in St Louis, Missouri, in mid-October.

There were reports this month that Bayer had a figure of up to $8 billion to settle all of the Roundup claims in the US, though the company declined to comment and analysts expect the cases to continue for some time.

“They are still some way away from agreeing on a number,” said Mr Bray. “My own view is that we will see a good few more months of talks until a settlement is reached.” – Copyright The Financial Times Limited 2019