Transaction reinforces Elanco's commitment to
most significant value creation opportunities in pet health and
livestock sustainability
Enables company to accelerate debt paydown by
$1.05B to $1.1B
GREENFIELD, Ind., Feb. 5, 2024
/PRNewswire/ -- Elanco Animal Health Incorporated (NYSE: ELAN)
today announced it has entered into an agreement to sell its aqua
business to Merck Animal Health (NYSE: MRK) for approximately
$1.3 billion in cash, which
represents approximately 7.4x the estimated 2023 revenue of the
Elanco aqua business.
"A strategic decision resulting from a disciplined process over
the last year, the sale of the aqua business allows us to
prioritize our investments in larger markets with greater earnings
potential over the medium and long term, while creating balance
sheet flexibility," said Jeff
Simmons, President and CEO of Elanco Animal Health. "We are
focused on delivering consistent high impact innovation and
continue to have confidence in our late-stage pipeline with six
potential blockbuster products expected in the U.S. market by 2025.
Further, we are advancing our next wave of development projects,
which we believe will contribute meaningful growth for Elanco
through the second half of the decade. Importantly, the proceeds
from this transaction combined with improved free cash flow from
the business, will accelerate deleveraging with net debt to
adjusted EBITDA expected in the high-3x to low-4x range by the end
of 2025."
The transaction reinforces Elanco's focus and investment on its
most significant value creation opportunities, notably in pet
health and livestock sustainability. In addition to the expected
U.S. approvals in the first half of 2024 for Credelio Quattro™,
Zenrelia™ and Bovaer®, Elanco is pursuing a portfolio of clinical
development projects that the company expects to have
differentiated profiles and blockbuster potential in significant
markets with meaningful growth and earnings potential. Elanco's
targeted areas of focus include next generation products for pet
parasiticides, dermatology and pain, as well as livestock
sustainability. Additionally, the company is opportunistically
pursuing platform-aligned targets, such as monoclonal antibodies,
and other major emerging spaces of high unmet need.
"We are excited for the acquisition of Elanco's aqua products,
solutions as well as the capabilities and expertise the team brings
to our business," said Rick DeLuca,
president, Merck Animal Health. "We believe this acquisition,
coupled with our commercial and scientific prowess, will deliver
enhanced benefits for our aqua customers. The addition of this
innovative portfolio of cold water and warm water aqua products
across vaccines, anti-parasitic treatments, water supplements and
nutrition, will establish Merck Animal Health as a leader in
aqua."
Transaction Details
Elanco's aqua business includes
products across both warm-water and cold-water species, generating
an estimated $175 million in revenue
and approximately $92 million in
adjusted EBITDA, excluding the allocation of corporate costs, based
on 2023 preliminary results. The divestiture includes current
marketed brands, aqua R&D projects, the transfer of
manufacturing sites in Prince Edward
Island, Canada and Dong Nai,
Vietnam and approximately 280 commercial and manufacturing
employees.
Upon closing of the transaction, Elanco plans to use the
expected $1.05 billion to
$1.1 billion of after-tax cash
proceeds to pay down a portion of the Term Loan B debt. Elanco's
preliminary full year 2023 results, which do not include the effect
of the sale of the aqua business, project net debt to adjusted
EBITDA to be slightly below the midpoint of the company's previous
guidance range (5.5x to 5.8x). Giving pro forma effect to the
transaction for the full year 2023, including the expected debt
paydown and excluding the EBITDA associated with the aqua business,
the company estimates the net leverage ratio would have been 0.6x
to 0.7x lower, at or slightly below 5.0x. In 2024, with the
anticipated debt paydown resulting from the transaction and from
cash generated by the base business, the company expects to end the
year with net debt to adjusted EBITDA in the mid-4x range. Further,
the company expects net debt to adjusted EBITDA in high-3x to
low-4x range by the end of 2025, driven by innovation fueled growth
and continued debt paydown from improving free cash flow.
The expected retirement of a portion of the Term Loan B debt
will result in reduced interest expense of approximately
$65 million, or $0.11 of EPS, annually. For 2023, based on the
midpoint of the company's previous adjusted EPS guidance
($0.91), net EPS dilution would be
approximately $0.03, or about 3%,
while the company will be able to reduce net debt by approximately
20%.
The transaction, which is subject to regulatory approvals and
customary closing conditions and adjustments, is expected to close
around mid-year. The Company plans to discuss the transaction
further when it releases its fourth quarter and full year fiscal
2023 financial results on February 26th,
2024.
BofA Securities, Inc. is serving as the company's exclusive
financial advisor and White & Case LLP is serving as the
company's legal advisor in connection with the transaction.
Preliminary Full Year 2023 Results
This press release
discusses estimated financial results for the full year of 2023,
which are preliminary, unaudited and represent the most
recent current information available to company management.
The company's actual results may differ from these estimated
financial results, including due to the completion of its
financial closing procedures and final adjustments. The company
expects to issue full financial results for the fourth quarter and
full year 2023 on February 26,
2024.
About Elanco
Elanco Animal Health Incorporated (NYSE:
ELAN) is a global leader in animal health dedicated to innovating
and delivering products and services to prevent and treat disease
in farm animals and pets, creating value for farmers, pet owners,
veterinarians, stakeholders, and society as a whole. With nearly 70
years of animal health heritage, we are committed to helping our
customers improve the health of animals in their care, while also
making a meaningful impact on our local and global communities. At
Elanco, we are driven by our vision of Food and Companionship
Enriching Life and our Elanco Healthy Purpose™ Sustainability
Initiatives – all to advance the health of animals, people, and the
planet. Learn more at elanco.com.
Cautionary Statement Regarding Forward-Looking
Statements
This press release contains forward-looking
statements within the meaning of the federal securities laws. These
forward-looking statements include, without limitation, statements
regarding the proposed divestiture, including the timing of the
divestiture, the expected financial impacts of the divestiture,
plans for using the cash we expect to receive in the divestiture,
the impact of the divestiture on our business and financial
results, expected growth in our business and expected product
launches and sales. There are a number of important factors that
could cause actual events to differ materially from those suggested
or indicated by such forward-looking statements, including
uncertainties as to the timing of the divestiture; the inability of
the parties to satisfy the conditions to closing the divestiture,
including obtaining required regulatory approvals; the effect of
the announcement or pendency of the transaction on Elanco's ability
to retain and hire key personnel and maintain relationships with
customers, suppliers and other business partners; risks related to
diverting management's attention from our ongoing business
operations; our ability to recognize the expected financial and
cash generation benefits of the transaction; the impact of
disruptive innovations and advances in veterinary medical
practices, animal health technologies and alternatives to
animal-derived protein; changes in regulatory restrictions on the
use of antibiotics in farm animals; the success of our research and
development and licensing efforts; unanticipated safety, quality of
efficacy concerns and the impact of identified concerns associated
with our products; the lack of availability or significant
increases in the cost of raw materials; risks related to the
evaluation of animals; manufacturing problems and capacity
imbalances; and actions by regulatory bodies, including as a result
of their interpretation of studies on product safety. For
information about other factors that could cause actual results to
differ materially from forward-looking statements, please see the
company's latest Form 10-K and Form 10-Qs filed with the Securities
and Exchange Commission. Although we have attempted to identify
important risk factors, there may be other risk factors not
presently known to us or that we presently believe are not material
that could cause actual results and developments to differ
materially from those made in or suggested by the forward-looking
statements contained in this press release. We caution you against
relying on any forward-looking statements, which should also be
read in conjunction with the other cautionary statements that are
included elsewhere in this press release. Any forward-looking
statement made by us in this press release speaks only as of the
date thereof. Factors or events that could cause our actual results
to differ may emerge from time to time, and it is not possible for
us to predict all of them. We undertake no obligation to publicly
update or to revise any forward-looking statement, whether as a
result of new information, future developments or otherwise, except
as may be required by law.
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SOURCE Elanco Animal Health