Elanco Animal Health Inc., the business Eli Lilly & Co. listed last year, is aiming to reach an agreement as soon as next week to combine with Bayer AG’s animal-health unit, people with knowledge of the matter said.
The companies hope to announce a deal around the time of Elanco’s Aug. 13 earnings release, the people said, asking not to be identified as the discussions are private. Elanco, which has a market value of about $12.3 billion, plans to pay at least part of the acquisition cost using stock, the people said.
Elanco lost 4.2% Wednesday to close at $31.47. Bayer rose as much as 2.6% early Thursday in Frankfurt.
Bayer is selling units to sharpen its focus after the $63 billion purchase of Monsanto, which saddled it with thousands of lawsuits claiming that the Roundup weedkiller it acquired in that deal causes cancer. The German giant agreed to unload its majority stake in a chemicals venture Wednesday in a deal valued at $3.9 billion, and two Roundup trials have been delayed as pressure builds on Chief Executive Officer Werner Baumann to fashion a settlement.
Bayer would get a significant minority stake in Elanco under the deal being discussed, according to another person. The companies are currently hammering out potential antitrust issues by identifying which businesses they will likely need to sell to gain regulatory approval, the person said.
While Bayer prefers a deal with Elanco, no final agreements have been reached and the talks could drag on or fall apart, the people said. Bayer may proceed with its previous plans for a broader auction process if it can’t agree on terms with Elanco by early September, one person said.
A deal between Elanco and Bayer would preempt a sale process that was expected to be one of Europe’s most hotly contested deal situations this year. It had attracted a flurry of initial interest from buyout firms ranging from KKR & Co. to Blackstone Group Inc. and CVC Capital Partners, which have increasingly been bidding against each other as they try to spend the record amounts of capital the industry has amassed.
Bayer said in a statement that it’s on track with plans to exit the animal-health business and its primary focus is on a sale. The German company also continues to consider all value-maximizing options, it said in the statement, declining to comment further.
Elanco has grown rapidly through at least 10 acquisitions since 2007, including the $5.4 billion takeover of Novartis AG’s animal-health unit. A representative for Elanco, which is based outside Indianapolis, declined to comment.
The sale of Bayer’s animal-health unit was expected to fetch as much as 8 billion euros ($9 billion), Bloomberg News has reported. The process was initially slated to kick off in the second quarter, people with knowledge of the matter said in March, though Bayer has repeatedly pushed back the start of the auction.
The Bayer business offers medicine and antibiotics to farm animals and pets. The division’s best-selling product line is the Advantage flea, tick and worm treatments for small animals.
Drugmakers including Lilly, Bayer and Pfizer Inc. have all offloaded their animal-health units in recent years. The businesses are often stable, profitable operations that go unrecognized inside larger pharmaceutical firms increasingly focused on ambitious research bets.