April 22, 2014

Acquisition of Novartis makes Elanco number two animal health company
 

With a presence in approximately 40 countries and 2013 revenue of approximately US$1.1 billion, Novartis Animal Health is focused on developing better ways to prevent and treat diseases in pets, farm animals and farmed fish.

For farm animals, the company offer therapeutic products to treat parasitic and bacterial diseases and are also continually developing new vaccines to prevent diseases in livestock and farmed fish. Specific needs of food producers in the area of farm bioprotection are met by providing innovative fly control products and services.

Lilly will acquire Novartis Animal Health's nine manufacturing sites, six dedicated research and development facilities, a global commercial infrastructure with a portfolio of approximately 600 products, a robust pipeline with more than 40 projects in development, and an experienced team of more than 3,000 employees.

The acquisition will greatly expand and complement Elanco's product portfolio, R&D and manufacturing capabilities, and commercial presence in key geographies. In particular, it provides Elanco with a greater commercial presence in the companion animal and swine markets, expands Elanco's presence in the equine and vaccines areas, and creates an entry into the aquaculture market.

By improving efficiencies and reducing costs across both Elanco and Novartis Animal Health, Lilly expects to achieve estimated cost savings of approximately US$200 million per year within three years of deal closing, equating to more than 10% of operating expenses from the combined animal health businesses.

John C. Lechleiter, Ph.D., Lilly's chairman, president and chief executive officer said, "Significant investments in our animal health business in recent years have enabled Elanco to double its revenue since 2008, leading the industry in growth. Global trends suggest continued sustained demand for animal health products in the years ahead. Through this acquisition, which moves Elanco to top-tier in the industry, we intend to create value for our shareholders by adding to our promising pipeline of innovative animal health assets, increasing sales through a larger commercial footprint, and improving efficiencies and lowering costs."

Earlier this year, Elanco strengthened its poultry vaccine portfolio through the acquisition of Lohmann Animal Health, a global leader in the supply of poultry vaccines, which also markets a range of feed additives.
 

Under the terms of the agreement, Lilly will acquire all assets of Novartis Animal Health for a total purchase price of approximately US$5.4 billion, including anticipated tax benefits. Lilly plans to fund this acquisition with approximately US$3.4 billion of cash-on-hand and US$2.0 billion in debt to be issued. No other financial terms of the transaction are being disclosed.

Excluding the amortisation of intangibles, Lilly expects the combined entity to achieve EBIT as a percent of revenue in the mid-20% range by 2018. The company expects the transaction to be accretive to earnings on a cash basis beginning in 2016, excluding integration costs.

The transaction is expected to close by the end of the first quarter of 2015, subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act, similar requirements outside the United States, and other customary closing conditions. The transaction is not subject to any financing conditions.