GREENFIELD, Ind. - Elanco Animal Health (NYSE:ELAN) Incorporated (NYSE: ELAN) has reached an agreement to divest its aquaculture business to Merck Animal Health (NYSE: MRK) for approximately $1.3B in cash. This strategic move is part of Elanco's focus on prioritizing investments in more profitable areas such as pet health and livestock sustainability.
The sale, which is expected to close around mid-year, is subject to regulatory approvals and customary closing conditions. It includes Elanco's marketed aqua brands, research and development projects, manufacturing sites in Canada and Vietnam, and roughly 280 employees.
Jeff Simmons, President and CEO of Elanco, stated that this decision follows a year-long disciplined process and will enable the company to accelerate debt reduction by $1.05B to $1.1B. He emphasized the company's continued confidence in its pipeline of potential blockbuster products anticipated in the U.S. market by 2025.
Elanco's preliminary full year 2023 results, unaffected by the sale, showed a net debt to adjusted EBITDA slightly below the midpoint of the company's previous guidance range. Pro forma effects of the transaction suggest a net leverage ratio reduction by 0.6x to 0.7x, placing it at or just below 5.0x for the full year 2023. By the end of 2025, Elanco projects its net debt to adjusted EBITDA will be in the high-3x to low-4x range, supported by innovation-driven growth and improved free cash flow.
The transaction is also expected to lower annual interest expenses by about $65M, translating to an $0.11 increase in earnings per share (EPS). For 2023, Elanco anticipates a net EPS dilution of approximately $0.03, while reducing net debt by around 20%.
Rick DeLuca, president of Merck Animal Health, expressed enthusiasm for the acquisition, which he believes will establish Merck as a leader in aquaculture health solutions.
Elanco plans to discuss the transaction in more detail during its fourth quarter and full year fiscal 2023 financial results announcement on February 26, 2024.
This article is based on a press release statement from Elanco Animal Health.
InvestingPro Insights
In light of Elanco's strategic divestiture of its aquaculture business, a look at the company's financial health and market performance reveals some key insights. According to InvestingPro data, Elanco Animal Health Incorporated currently boasts a market capitalization of $7.26B. While the company's P/E ratio stands at -6.36, indicating that investors are expecting future growth, the adjusted P/E ratio for the last twelve months as of Q3 2023 is significantly lower at -46.44, reflecting the market's adjustments for extraordinary items.
Interestingly, despite a revenue decline of 3.77% over the last twelve months as of Q3 2023, Elanco has managed a strong return over the last three months, with a price total return of 53.28%. This suggests a robust market confidence, likely buoyed by the company's strategic moves and anticipated innovation-driven growth. An InvestingPro Tip also highlights that Elanco's net income is expected to grow this year, which aligns with the CEO's confidence in the company's pipeline of potential blockbuster products.
For investors seeking more detailed analysis and additional insights, InvestingPro offers a range of tips on Elanco, including expectations of profitability this year and an evaluation of the company's liquidity. To explore these further, subscribers can access a special New Year sale with discounts of up to 50% on InvestingPro subscriptions. Use coupon code SFY24 for an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 for an additional 10% off a 1-year InvestingPro+ subscription. With these resources, investors can stay informed on Elanco's performance and make more data-driven decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.