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Private equity firms mull bids for Eli Lilly's Elanco unit

April 25, 2018

Eli Lilly and Co. has attracted interest from private equity firms including Bain Capital and Advent International Corp. for its Elanco animal-health business, as the pharmaceutical giant considers options for the ailing unit, sources with knowledge of the matter told Bloomberg News.

Carlyle Group LP may also consider bidding for Elanco, according to the sources, who asked not to be identified as the matter isn’t public. Discussions are at an early stage, and Lilly may choose to keep the business or pursue a spinoff, they said. Elanco could be valued at $14 billion to $16 billion, according to JPMorgan Chase & Co. estimates from December, when Lilly said it was weighing an initial public offering, sale or merger of the unit.

“We do not comment on market rumors or deal speculation,” said Mark Taylor, a spokesman for Indianapolis-based Lilly. “We are still reviewing strategic alternatives for our Elanco Animal Health business and expect to provide an update mid-year in connection with our Q2 financial results announcement.”

If Lilly does sell the business, a private equity buyer might be more prone to leave Elanco as a stand-alone business than would a competitor. Firms in the same field typically seek cost savings in mergers, in part by combining operations and eliminating jobs. Elanco employs 6,250 people worldwide, including about 775 at its Greenfield headquarters.

Representatives for Boston-based Bain, Boston-based Advent and Washington, D.C.-based Carlyle declined to comment.

Several health-care companies are examining options for their animal-health business as they seek to replicate the success of Zoetis Inc., whose shares have almost tripled in value since it separated from New York-based Pfizer Inc. in 2013. Henry Schein Inc., a Melville, New York-based medical supplier for doctors and dentists, said Monday that it will spin off its animal unit after combining it with closely held Vets First Choice.

On Tuesday, Lilly said that first-quarter sales at Elanco fell 1 percent year-over-year to $761 million, hit mainly by a decrease in sales to the livestock industry. The company’s products, including drugs that help cattle gain weight and dairy cows produce more milk, have been increasingly at odds with a U.S. consumer focus on organic and unaltered food.

The “clean food movement hit us,” Elanco President Jeff Simmons said in January.

Lilly has grown Elanco rapidly in recent years, striking at least 10 deals since 2007, including the $5.4 billion acquisition of Switzerland-based Novartis AG’s animal-health unit in 2014.

In an interview with Bloomberg TV Tuesday, Lilly CEO David Ricks said the company is more focused on building its own pipeline through bolt-on acquisitions and partnerships than pursuing large-scale dealmaking.

“I wouldn’t be surprised to hear about more types of those combinations, that’s just not where we’re focused today,” Ricks said, discussing Takeda Pharmaceutical Co.’s potential $64 billion deal to buy Shire Plc.

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