Bayer Inks $7.6B Deal To Divest Animal Health Unit To Elanco

Bayer AG (DE:BAYGN) (OTC:BAYRY) entered a definitive agreement with U.S.-based company Elanco Animal Health (NYSE:ELAN) to divest its Animal Health business for $7.6 billion.

Elanco will finance the acquisition with a mix of cash and stock. Bayer will receive $5.32 billion in cash and $2.3 billion in Elanco Animal Health common shares. The transaction is expected to close in mid-2020.

Shares of Bayer have gained 8.1% year to date compared with the industry’s growth of 1.6%.

The sale of the Animal Health business marks the largest transaction in the series of portfolio measures initiated by Bayer in November 2018. The sale enhances the company’s focus as a global leader in life sciences. The company, in November, had also announced the divestitures of its sun-care product, Coppertone, and foot-care brand, Dr. Scholl's, along with the sale of its 60% stake in German site services provider, Currenta.

Bayer’s Animal Health business is a global leader in the animal health segment, with sales of $1.8 billion in fiscal 2018. Meanwhile, from Elanco’s point of view, the deal will be highly complementary. It will create the second-biggest animal health company, with top three positions across a broad range of species and geographies. The acquisition will enable Elanco to increase its portfolio of leading global brands, and bolster its innovation capabilities and R&D pipeline. The deal will also combine Elanco's strong relationship with veterinarians and Bayer's leadership in retail and e-commerce. These will ultimately benefit Elanco’s customers.

We note that Elanco was spun-off from Eli Lilly and Co. (NYSE:LLY) and it started operating as an independent entity from March 2019. We further note that another big-wig Pfizer (NYSE:PFE) had spun-off its animal health business, Zoetis in 2013.

Bayer currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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