August 21, 2019
Headlines
Bayer to Sell Unit to Elanco
8/20 10:00 AM

BERLIN (Dow Jones) -- Bayer AG is selling its animal-health business to an American rival for $7.6 billion, part of the German drug-and-chemicals giant's plan to divest assets amid mounting legal liabilities from its Roundup herbicide.

The deal to sell the unit to Elanco Animal Health Inc., based in Greenfield, Ind., would create a new industry heavyweight in the business of preventing and treating diseases for pets and livestock. The combined company would have a market share of roughly 13%, making it the second-largest animal-health company by revenue behind U.S. rival Zoetis Inc. and ahead of German, family-owned Boehringer Ingelheim, according to Germany's Baader Bank.

Elanco was a division of Eli Lilly & Co. until the U.S. pharmaceutical company sold a minority stake in the operation in September 2018 through an initial public offering. The deal for Bayer's animal-health unit, which will double its pet business and strengthen its presence in emerging markets and in the cattle business, is Elanco's largest since going public.

Several private-equity firms had also expressed an interest in the Bayer unit, according to people familiar with the matter.

Bayer said it would get $5.3 billion in cash and retain a stake worth $2.3 billion in Elanco, which it plans to exit over time.

Bayer's share price has slumped since it lost a string of jury trials that argued that the Roundup weedkillers it bought as part if its acquisition of Monsanto cause cancer. More than 18,000 plaintiffs have now filed similar suits.

The German company said in December it was exploring options to exit its animal-health business, the smallest of its four units. The move is part of a wider plan to shed operations that are diverting resources and management time from its core and bigger drugs and agriculture divisions, save costs and bring down debt.

The sale will help the Leverkusen, Germany-based company chip away at its debt load of around EUR35.7 billion ($39.56 billion), which soared last summer with the acquisition of U.S. agriculture giant Monsanto.

The deal is also a crucial step in Bayer's efforts to regain investor confidence after a majority of shareholders signaled in April a lack of confidence in how the company is being run in the wake of its big bet on Monsanto.

Bayer Chief Executive Werner Baumann has come under intense pressure from shareholders, who have accused him of underestimating the legal and reputational risks of the deal. Bayer has said it acted conscientiously in its due diligence for that deal.

Bayer's share price has dropped roughly 30% since the acquisition. So far, Bayer has lost three jury trials, raising fears that it could face billions in liabilities.

Bayer is appealing the first verdicts and argues that Roundup and its active ingredient, glyphosate, are safe. But shareholders have grown more frustrated with every loss in court, prompting Bayer in June to hire a prominent U.S. lawyer to help to advise its board on trial tactics and mediation.

Amid uncertainty over how much the lawsuits might end up costing the company, shareholders have said Bayer must deliver on its restructuring plans. The Elanco deal is the last of a series of asset sales to be completed and a deal was reached earlier than Bayer had forecast.

In recent months, Bayer sold its 60% stake in chemical park operator Currenta, Coppertone sunscreens and Dr. Scholl's foot-care products. The Elanco deal is expected to close in mid-2020, pending regulatory clearance.

Bayer shares rose slightly on the announcement of the sale, trading up 0.9% mid-morning. Analysts say the Roundup lawsuits would continue to weigh on the company's stock until they run their course or Bayer decides to settle, allowing the market to put a price on the total liability.

(CZ)

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