Bayer may merge animal health unit with Elanco

Bayer has delayed a planned sale of its animal health unit to private equity interests in order to explore a merger with US firm Elanco, claims Reuters. Citing three separate anonymous sources, the news agency says the two companies are already working with banks to ensure any merger would secure regulatory approvals. However it also suggests Elanco may not have the cash needed to complete the deal. Elanco – formerly part of Eli Lilly before being spun off last year – is the fourth-largest animal health company and adding Bayer’s fifth-ranked business would create an industry giant to challenge rivals like Pfizer’s Zoetis, Boehringer Ingelheim and Merck & Co. Elanco is weighed down with debt that it inherited after separating from Lilly, however, it ended last year with an exposure of around $2.5 billion, so Bayer would likely have to keep a stake in the merged company to secure a deal. A spokesman for Bayer told Reuters that “after the strategic review of the possibilities, the main focus is on a sale”, although he said the company will “consider all value-maximising options.” Investors have been calling for Bayer to shed the animal health business for some time to narrow its focus on higher-margin operations like human pharmaceuticals and raise cash in the wake of its $63 billion takeover of Monsanto.