German pharmaceutical giant Bayer is in talks with Greenfield-based Elanco Animal Health Inc. about a possible merger, Reuters reported Tuesday, citing three sources familiar with the matter.
The merger would combine Elanco, the fourth-largest global player in animal health, with Bayer’s pet-health division, which ranks fifth in veterinary medicine. The combination would create a dominant force in the industry.
The sources told Reuters that two companies are working with banks to ensure any merger would secure regulatory approval.
Reuters did not provide a price tag for the deal, but Barron’s estimated it at $4.5 billion.
Elanco did not immediately respond to a phone call seeking comment about a potential deal.
Elanco shares closed at $34.09 each Tuesday, up 2.2 percent on the day. Bayer shares rose 1.8 percent, to $16.89 each.
Bayer acquired agribusiness giant Monsanto a year ago for $63 billion and has been under pressure to divest assets to raise cash and boost its stock price. Its CEO, Werner Baumann, said in November that the company would seek to sell its animal health division at a price that analysts estimated at $6.7 billion to $7.8 billion.
A Bayer spokesman told Reuters that Bayer was still considering a sale as part of “all value-maximising options.”
Elanco has a market value of $12 billion, but had about $2.5 billion in senior debt as of December, Reuters said. The company sells more than 125 products to veterinarians and food animal producers in more than 90 countries, the news service said.
That debt could prevent Elanco from acquiring the Bayer unit outright, analysts say, which means Bayer would likely have maintain a stake in the combined company.
Elanco was part of Eli Lilly and Co. for 64 years until it was spun off into an independent public company in September in a $1.5 billion initial public offering.
The only players larger than Elanco in animal health are Pfizer spinoff Zoetis, Boehringer Ingelheim and Merck.
The company has more than 5,000 employees worldwide, including more than 800 in Greenfield.