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UPDATE: Elanco to acquire Bayer's animal health unit in $7.6B deal

Elanco Animal Health Inc. agreed to acquire Bayer AG's animal health business in a deal valued at $7.6 billion, creating the world's second-largest animal health company.

Greenfield, Ind.-based Elanco will fund the transaction through both cash and equity. Bayer will receive $5.32 billion in cash, subject to certain adjustments, and $2.28 billion or about 68 million Elanco Animal Health common shares.

Elanco said the deal will double its companion animal business, advance the company's intentional portfolio mix transformation and create a balance between its food animal and companion animal segments.

The combined entity is expected to continue to deliver mid-single-digit revenue growth, while delivering double digit adjusted EBITDA margin growth, Elanco said.

Bayer's animal health business, which develops products to prevent and treat diseases in companion and farm animals, recorded sales of $1.8 billion in fiscal 2018. The unit's portfolio includes the best-selling Advantage brand for flea, tick and worm control.

Leverkusen, Germany-based Bayer said its exit from the animal health business allows the company to focus more on its life sciences business — the largest transaction in a series of measures initiated by the company in November 2018.

All Bayer Animal Health employees will have at least one year of employment protection against unilateral termination with similar and no less favorable benefits.

The transaction, which is subject to regulatory approval and closing conditions, is expected to close in mid-2020.

Goldman Sachs acted as financial adviser to Elanco, while Paul Weiss Rifkind Wharton & Garrison LLP and Hengeler Mueller served as legal counsel. Elanco's board was provided a fairness opinion by Duff & Phelps.

Bank of America Merrill Lynch and Credit Suisse acted as financial advisers to Bayer, and Sullivan & Cromwell, PwC Legal and Linklaters served as legal advisers.

Parsippany, N.J.-based Zoetis Inc. is the world's largest animal health company.