Elanco Animal Health said Monday it has agreed to sell its aqua business to Merck Animal Health for $1.3 billion, a move that allows it to pay down some of its debt load and invest in new pipeline products.
The Greenfield-based maker of animal medicines and health products said the sale will include vaccines, anti-parasitic treatments, water supplements and nutrition for salmon, shrimp and other species.
The sale will also include research and development projects and manufacturing sites in Canada and Vietnam.
The aqua business line is one of Elanco’s smallest, with about $175 million in sales in 2022, or about 4% of the company’s total revenue of $4.4 billion. Elanco will release 2023 year-end earnings on Feb. 26.
Shares of Elanco shot up 10.2% in premarket trading on Monday to $16.23, the highest in about 18 months. But the stock is still far below its high in the $36 range in the summer of 2021.
The sale price represents approximately 7.4 times the estimated 2023 revenue of the Elanco aqua business, Elanco said. The company plans to use $1.05 billion to $1.1 billion of after-tax cash proceeds to pay down a portion of its debt.
Elanco has been under pressure to reduce its large debt load of more than $5 billion, much of it taken on when it bought the animal health unit of German conglomerate Bayer AG in 2020 for $6.9 billion.
That will result in reduced interest expense of approximately $65 million, or 11 cents of earnings per share annually, Elanco said.
“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, said in written remarks.
Simmons told IBJ last year that reducing debt is the company’s “number one capital priority.”
The roots of Elanco’s aqua business date back to 1984 when Aqua Health Ltd., an independent company, started innovating and commercializing fish health products for worldwide use. In 2001 Novartis Animal Health acquired the business. In 2015, Elanco, then part of Indianapolis-based drugmaker Eli Lilly and Co., acquired the business when Lilly bought Novartis Animal Health for $5.4 billion.
Lilly spun off Elanco as a separate, publicly traded company in 2018.
Simmons said he has confidence in Elanco’s late-stage pipeline, which he said has six potential blockbuster products expected in the U.S. market by 2025.
Merck, based in Rahway, New Jersey, said the acquisition will position it as a leader in aqua health.
“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,” Rick DeLuca, president of Merck Animal Health, said in written remarks.
The companies expect the deal to close by midyear.