BAYER UNLOADS ANIMAL HEALTH BUSINESS – By Todd Horwitz, Bubba Trading.

 
– By Todd Horwitz, Bubba Trading.


Bayer Sells Its Animal Health Business

Bayer will sell its animal health business to Elanco for $7.6 billion as the German chemical and pharmaceutical giant tries to reorganize its business following its acquisition of Monsanto, which faces scores of lawsuits over claims its pesticide Roundup causes cancer.

The two companies said Bayer would receive $5.3 billion in cash and $2.3 billion worth of Elanco stock based on a price of $33.60 per share, the 30-day average price as of Aug. 6.  Elanco said the stock amounted to 68 million shares, or a stake of about 18.2% based on Refinitiv data, but the number of shares could rise or fall by as much as 7.5%, depending on Elanco’s share price performance on the closing date. 

Refinitiv data on 373 million outstanding shares does not yet take into account the dilutive effect from an as-yet unspecified capital increase that Elanco plans to carry out. The price tag for the deal implies a multiple of 18.8 times adjusted core earnings, Bayer said, adding it would sell the equity stake over time. 

Bayer is battling to regain investor confidence after a majority of shareholders signaled in April a lack of confidence in the company’s leadership. Shareholders have accused Bayer Chief Executive Werner Baumann of underestimating the legal and reputational risks of the Monsanto deal.

Bayer has said it acted conscientiously in its due diligence for the acquisition. But its share price has dropped roughly a third since the deal closed last summer as unfavorable verdicts in the three Roundup jury trials so far have fueled fears that the company could face billions of dollars in liabilities.

Amid uncertainty over how much the lawsuits might end up costing the company, investors have said Bayer must deliver on its restructuring plans. The Elanco deal, struck earlier than Bayer had forecast, adds to a series of asset sales.

Todd “Bubba” Horwitz

Financial Markets and Political Commentary
 

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Todd Horwitz - Author of “Average Joe Options“. Todd began his trading career in 1980 at the CBOE. He was one of the original traders in the OEX & helped start the SPX. He is a member the CME where he trades S&P futures as well as foreign currencies & is a regular contributor to CNBC, Bloomberg, BNN, Fox & many other major news networks.