Elanco Animal Health To Offload Aqua Business For $1.3B, Plans To Lower Debt Burden

Merck Animal Health, a division of Merck & Co Inc MRK, has agreed to acquire Elanco Animal Health Incorporated’s aqua business ELAN for $1.3 billion in cash.

The business consists of a portfolio of medicines and vaccines, nutrition, and supplements for aquatic species; two related aqua manufacturing facilities in Canada and Vietnam; and a research facility in Chile. 

The acquisition is expected to be completed by mid-year 2024.

Upon closing, the acquisition will broaden Merck Animal Health’s aqua portfolio with products such as CLYNAV, a new generation DNA-based vaccine that protects Atlantic salmon against pancreas disease, and IMVIXA, an anti-parasitic sea lice treatment. 

The acquisition also brings a portfolio of water treatment products for warm water production, complementing Merck Animal Health’s warm water vaccine portfolio. 

The addition of Elanco’s products will establish Merck Animal Health as a leader in aqua, Reuters noted, citing Rick DeLuca, president of Merck Animal Health.

Elanco plans to use the expected $1.05 billion to $1.1 billion of after-tax cash proceeds to pay down a portion of the Term Loan B debt. 

Elanco’s aqua business has an estimated $175 million in revenue and approximately $92 million in adjusted EBITDA, based on 2023 preliminary results. 

Elanco’s preliminary full-year 2023 results, which do not include the effect of the sale of the aqua business, project net debt to adjusted EBITDA to be slightly below the midpoint of the company’s previous guidance range (5.5x to 5.8x).

Further, the company expects net debt to adjusted EBITDA in high-3x to low-4x range by the end of 2025.

For 2023, based on the midpoint of the company’s previous adjusted EPS guidance ($0.91), net EPS dilution would be approximately $0.03, or about 3%, while the company will be able to reduce net debt by approximately 20%.

Price Action: ELAN shares are up 6.28% at $15.65 on the last check Monday.

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