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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowElanco Animal Health said Tuesday it has completed the divestiture of its aqua business to Merck Animal Health for about $1.3 billion in cash, allowing it to pay down more of its sizable debt load.
The Greenfield-based maker of animal medicines and health products said it plans to use $1.05 billion to $1.1 billion of the proceeds to pay down debt in the third quarter.
The company had debt of $5.7 billion as of March 31 and has been under pressure from Wall Street to reduce it. Much of the debt was acquired when Elanco bought German conglomerate Bayer AG’s animal-health division for $6.9 billion in 2020, a move that catapulted Elanco from fourth place to second place in the global animal-health industry, behind only New Jersey-based Zoetis Inc.
Elanco said that combined with the expected $280 million to $320 million of cash generated from the base business, it expects to pay down about $1.3 billion to $1.4 billion of debt this year.
Shares of Elanco rose as much as 2% Tuesday morning, to $14.22 each, before edging down 0.7%, to 13.85, in midmorning trading. The stock’s 52-week high of $18.80 was set on June 12.
Elanco said paying down the debt would allow it to end the year with net debt to adjusted EBITDA in the mid-4x range. It said it expects net debt to adjusted EBITDA to improve further in 2025 to the high-3x to low-4x range.
“Finalizing this transaction marks a significant milestone in concentrating our focus on high-value opportunities in pet health and livestock sustainability while creating balance sheet flexibility. Elanco’s positive trajectory, demonstrated by three consecutive quarters of underlying revenue growth, pipeline progress, and our ability to reduce debt, strengthens our value proposition,” Todd Young, chief financial officer, said in written remarks. “The proceeds from this transaction, combined with increased free cash flow from our operations, accelerates our deleveraging and positions us to deliver substantial value over time.”
The company announced the sale of its aqua business in February, which it said would include vaccines, anti-parasitic treatments, water supplements and nutrition for salmon, shrimp and other species. The sale also includes research and development projects and manufacturing sites in Canada and Vietnam.
The aqua business line is one of Elanco’s smallest, with about $175 million in sales in 2023, or about 4% of the company’s total revenue of $4.42 billion.
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Wow. They sold a business with sales of $175 million for more than 7x sales? Margins must be REALLY good.