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Bayer's animal health business is attracting interest from private equity players, but the German pharmaceutical industry may have another buyer in the lead.
The company contacted Elanco, created by Eli Lilly last year, about a possible rapprochement between the two, reports Reuters, citing three unidentified sources. Elanco currently ranks 4th in the animal health market – behind the only Pfizer spin-off company, Zoetis, Boehringer Ingelheim and Merck – and the merger with the 5th largest company, Bayer Animal Health, would create a heavy competitor.
RELATED: With the filing of its initial public offering, Lilly unveils the animal health business Elanco – warts and all
One problem though: Elanco may not have the money to buy Bayer's animal health division, Reuters notes. Although it has a market capitalization of more than $ 12 billion, it also faces a significant debt resulting from the Lilly split. At the end of 2018, this tab totaled $ 2.5 billion, Elanco said in its annual report (PDF).
"We may not be able to generate enough money to cover all of our debt and be forced to take further action to meet our debt obligations, which may not be successful," he warned.
This means that Bayer may have to retain a stake in the merged company if it wants to enter into an agreement – a prospect that may not please the drug maker. As part of the process of selling animal health products, the group is trying to generate liquidity following a $ 63 billion Monsanto purchase that has been sharply criticized by analysts and investors. She announced that she would look for a sale last November after the announcement to announce that she would also eliminate some mainstream brands and cut 12,000 jobs.
A Bayer spokesperson did not immediately respond to a request for comment.
RELATED: Bayer's $ 8 billion sale of animal health stimulates private equity buyers: FT
Of course, Bayer does not need to do tango with Elanco, given the enthusiasm it arouses among private equity contenders. Last month, the Financial Times announced that CVC, Advent International, BC Partners and a team from Cinven-Permira would be potential bidders who could disburse up to 8 billion euros.
According to Reuters sources, Bayer still plans to submit private equity offers later this year. But he pushed back an auction process – supposed to start in June – to consider his prospects with Elanco, notes the press service.
Even if both parties can reach an agreement, the regulators may not accept it. The US Federal Trade Commission has been attacking drug manufacturers for some time, demanding an over-sale of Otezla from trading partners, Bristol-Myers Squibb and Celgene, and slapping Roche's buyer with several delays in its acquisition of Spark. Bayer and Elanco are working with the banks to make sure a deal gets the green light, Reuters sources said.
"The most important thing that stands out is the potential overlap on the flea and tick side. We need to look further into this issue … especially since this category of animal health products from Bayer is among the top 4 products (accounting for more than 60% of the diet), "says Umer Raffat, an analyst at ISC, in a note addressed to customers on Tuesday.
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