BAYRY Bayer Aktiengesellschaft (PK)

Divestiture to rival Elanco comes as legal liabilities from Roundup cases mount

By Ruth Bender 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 21, 2019).

BERLIN -- Bayer AG is selling its animal-health business to an American rival for $7.6 billion, part of the German drug-and-chemicals giant's plan to shed assets amid mounting legal liabilities from its Roundup herbicide.

The deal to sell the unit to Elanco Animal Health Inc. would create a formidable competitor in the business of preventing and treating diseases for pets and livestock. The combined company's roughly 13% share of the animal-health market would rank it behind only Zoetis Inc. and ahead of Boehringer Ingelheim, according to Germany's Baader Bank.

Elanco, based in Greenfield, Ind., was a division of Eli Lilly & Co. until the drugmaker sold a minority stake in the animal-health unit last September in an initial public offering. Elanco said the Bayer deal, its largest since going public, will double its pet business and strengthen its presence in emerging markets and in the cattle business.

Several private-equity firms had also expressed an interest in the Bayer unit, according to people familiar with the matter.

Bayer said it would get $5.3 billion in cash and a stake in Elanco worth $2.3 billion, which it plans to exit over time.

Bayer's share price has slumped in the past year as jury verdicts have gone against the company in early trials over claims that Roundup causes cancer. More than 18,000 plaintiffs have now filed similar suits over the weedkillers, which Bayer acquired in its deal for U.S. agriculture giant Monsanto.

Bayer said in December it was exploring options to exit its animal-health business, the smallest of its four divisions.

The move is part of a wider plan to shed operations that are diverting resources from its core pharmaceutical and agriculture businesses, with cost savings also helping to bring down its debt. The Leverkusen, Germany-based company has a debt load of around EUR35.7 billion ($39.56 billion), inflated by its acquisition of Monsanto.

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.

Bayer is appealing the verdicts and argues that Roundup and its active ingredient, glyphosate, are safe. But shareholders have grown more frustrated with every loss in court, prompting Bayer in June to hire a prominent U.S. lawyer to help to advise its board on trial tactics and mediation.

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.

In recent months, Bayer sold its 60% stake in industrial park operator Currenta, Coppertone sunscreens and Dr. Scholl's foot-care products. The Elanco deal is expected to close in mid-2020, pending regulatory clearance.

Bayer shares were little changed Tuesday. Analysts say the Roundup lawsuits will continue to weigh on the stock until they run their course or Bayer decides to settle, allowing the market to put a price on the total liability.

--Ben Dummett contributed to this article.

Write to Ruth Bender at Ruth.Bender@wsj.com

(END) Dow Jones Newswires

August 21, 2019 02:47 ET (06:47 GMT)

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