Editorial: Lilly spinoff wasting no time in quest for global growth

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For most of Elanco Animal Health’s 66 years in business, it was a little-noticed sliver of parent company Eli Lilly and Co.

My, how far it’s come.

Since Lilly two years ago spun off the business through an initial public offering, Elanco has bulked up in a hurry, most notably with the $6.9 billion acquisition of Bayer AG’s animal-health division.

The purchase, which closed this month, rockets annual revenue to an estimated $4.6 billion, up from $2.9 billion in Elanco’s final year as a Lilly subsidiary.

That deal also catapults Elanco from fourth place to second place in the $33 billion worldwide industry, behind only New Jersey-based Zoetis Inc.

So far, Elanco has been a textbook case for the benefits of spinoffs—for both the parent company divesting the business and the division gaining its independence.

Analysts say that, when Elanco was part of Lilly, it wasn’t hefty enough to significantly affect how investors valued the overall company. Spinning off Elanco allowed Lilly to unlock that value while creating a stand-alone business focused solely on opportunities in the companion-animal and food-animal-producer markets.

When an Indianapolis company announces that it is exploring “strategic alternatives” for a business, as Lilly did with Elanco in early 2018, civic leaders have reason to shudder. Lilly specifically said an outright sale was one of the options under consideration, an outcome that could have decimated jobs at Elanco’s headquarters in Greenfield, which now employs 950.

We’ve seen that movie before. When Michigan-based Dow Chemical in 1998 put Indianapolis-based DowBrands, the maker of Ziplock bags, on the block, the buyer shuttered the entire, 300-person headquarters.

That’s not to say only smooth-sailing lies ahead for Elanco. The deal swells Elanco’s global workforce from 5,800 to about 10,000. Meshing the two sprawling firms would be challenging in the best of times but is even more so amid a pandemic.

It’s also not clear how Indiana will fare in that integration. In a recent interview with IBJ reporter John Russell, CEO Jeff Simmons wouldn’t say whether Indiana—now home to about 2,100 workers in Greenfield, Indianapolis, Terre Haute and Clinton—would gain or lose workers during the integration, which is slated to include $300 million in cost cuts. He also wouldn’t say whether the headquarters would stay in Greenfield.

Let’s hope he’s engaging in economic-development gamesmanship, positioning the firm to scoop up incentives for jobs it ultimately might add in the state. It’s reassuring that Simmons did offer that “we have a long history here, a long legacy, and great relationships.”

Assuming the firm stays put, Elanco is poised to rank among the 10 largest public companies in Indiana. In a state that has seen many public companies scooped up by out-of-state buyers over the years, it is great to see Elanco blossom into a powerhouse in its own right, one taking bold steps to seize opportunities for growth.•


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