ROUNDUP 3: Bayer sells veterinary medicine in billion dollar deal to US group | 20/8/19

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(new: reaction of the Bayer works council in the new eighth paragraph)

LEVERKUSEN (dpa-AFX) – Agricultural chemicals and pharmaceuticals company Bayer is divesting its pharmaceutical division for domestic and farm animals. It goes for 7.6 billion dollars (6.85 billion euros) to the US company Elanco, as the Leverkusen Dax (DAX 30) company announced on Tuesday. With the sale, Bayer is advancing its intention to sell parts of the business and reduce debt after the expensive acquisition of the seed company Monsanto. About such a deal has already been speculated.

Of the sum, $ 5.3 billion will be paid in cash, Bayer reported. The remaining 2.3 billion will pay Elanco in shares. The Leverkusen want to separate "in due course" from the share in Elanco. The transaction volume is reported to be 18.8 times the adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) of the Bayer animal medicine business in the twelve months to June. The deal is expected to close in mid-2020, subject to approval by competition authorities.

The Bayer stock briefly turned positive. In the early afternoon the paper was again slightly in minus. Elanco lost 3 percent before the fair.

Elanco, once a part of the US pharmaceutical giant Eli Lilly (Eli Lilly and), is a sector with 5600 employees and $ 3.1 billion in revenue. With the Bayer deal, the global number two in animal health, it was said. Market leader is the US company Zoetis.

Bayer sells flea, tick and wormers as well as collars to ward off the vermin in veterinary medicine. Farmers provides the group with means to strengthen the defenses of farm animals, to combat pests in the barn and to improve hygiene. The prospects of the division Bayer had described as good.

But veterinary medicine is also the smallest division of Bayer, the subsidiary based in Monheim and production facilities in Kiel and Shawnee (USA) has about 3,700 employees, which is just over three percent of Bayer's workforce. Even measured in terms of revenue of 1.6 billion euros, the division is negligible: Bayer 2018 nearly 40 billion.

Employees of the German Animal Health GmbH will now be protected under the terms of the agreements until the end of 2025 from layoffs, Bayer said. For employees of the KVP Kiel and the sales company Bayer Vital applies a not so long protection. 4200 Bayer employees move to Elanco.

The Bayer works council demanded from the US company a plan for the changing colleagues. Elanco has pledged to invest in the growth of business and other innovations, said the General Works Council Chairman Oliver Zühlke on Tuesday. "For this we expect in the coming weeks clear future plans from the acquirer."

With the sale, Bayer can pay off its debt mountain, which was created with the 49 billion euro Monsanto acquisition. The Leverkusen press liabilities of 38.8 billion euros. Most recently, the Group had shares in the chemical park operator Currenta, the US foot care brand Dr. med. Scholls and the sun protection brand Coppertone Kasse made. Now Bayer wants to be more effective in the core business. "This transaction strengthens our focus as a leading life science company," said Bayer CEO Werner Baumann.

For Elanco, however, the Bayer division is interesting. Pet shops are in demand, as owners of dogs or cats spend a lot of money on the welfare of their loved ones. And farmers have an interest in their cows or pigs not being infected by parasites or suffering from infectious diseases.

"The market with veterinary medicine annually grows by 5 to 6 percent by sales," says Thilo Kaltenbach, pharmaceutical expert at the consulting firm Roland Berger. "As wealth grows in emerging markets like China, people spend more and more money on their pets there." At the same time, the industrialization of agriculture and the rising consumption of meat drove the business.

The potential also has with veterinary medicine Boehringer Ingelheim recognized. The Rhineland-Palatinate company took over Sanofi's veterinary medicine business in 2017 and realizes € 4 billion in animal health. Now Elanco will pass by.

"Pharmaceutical companies can develop veterinary drugs faster than drugs for people, drug patents play a lesser role," says Kaltenbach. "That results in fast growth with good margins."

The Federal Association of practicing veterinarians, however, is not very enthusiastic about the sale of the Bayer division: "With this a German company disappears from the scene," explains CEO Heiko Färber. "The market concentration continues to increase and the influence of foreign companies is increasing." This puts the current prescription requirement of veterinary medicine in Germany under pressure.

Färber fears that Europe will lose importance as a market for veterinary medicine, and that companies such as Elanco and Zoetis will focus even more on American and Asian demand. "Perspectively, investments may be lacking to develop preparations for the European market with its complex approval procedures."

Elanco stressed, however, that the shops complemented those of Bayer. "Ultimately, all our customers will benefit from the combination of Elanco's strong relationship with veterinarians and Bayer's leading role in retail and online commerce." / Wdw / as / DP / nas / fba



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