Replies to post #19365 on The Rising Influence of Rising Affluence

[birdguy]

The market certainly does not like this deal from ELAN prospective. Currently down 9%. Presume that ELAN saying they will continue with single digit growth is the reason as the market hoped for better.

Note that since rumors of a deal leaked this summer the stock is now down over 20%

[DewDiligence]

ELAN 3Q19 results:

https://investor.elanco.com/investors/press-releases/press-release-details/2019/Elanco-Animal-Health-Reports-Third-Quarter-Results/default.aspx

The upper bound of the 2019-guidance range for non-GAAP EPS was lowered slightly; the new non-GAAP EPS range is $1.04-1.08 (vs the prior range of $1.04-1.10).

3Q19 results and forward guidance do not include Bayer’s animal health business, which ELAN is in the process of acquiring (#msg-150629685).

The stock is -4% in PM trading.

[DewDiligence]

ELAN divests canine drug to facilitate acquisition of Bayer’s animal-health business:

https://www.businesswire.com/news/home/20200105005105/en/Elanco-Signs-Agreement-Dechra-Divest-Osurnia%C2%AE

Elanco Animal Health Incorporated…announced today it has signed an agreement to divest Osurnia, a treatment for otitis externa in dogs, to Dechra Pharmaceuticals PLC (LON: DPH) for $135 million in an all-cash deal.

Elanco has made the independent decision to divest global rights to Osurnia, which had 2018 annual revenue of $31.2 million, with intent to advance the previously announced acquisition of Bayer AG’s (ETR: BAYN) global animal health business. The closing of the transaction with Dechra is contingent on Elanco entering into a consent decree with the Federal Trade Commission (FTC), the European Commission (EU Commission) and other agencies in connection with its Bayer transaction, as well as other customary closing conditions.

[DewDiligence]

ELAN sells stock and stock/bond units to partially finance Bayer Animal Health acquisition:

https://www.businesswire.com/news/home/20200121006090/en/Elanco-Animal-Health-Announces-Common-Stock-Tangible

These two offerings combined will bring in about $1.1B of cash, if priced at close to the current market value. The cash portion (~70%) of the Bayer deal is $5.3B (#msg-150629685).

[DewDiligence]

Barron’s likes post-merger ELAN—but the stock is not a screaming buy (IMO):

https://www.barrons.com/articles/animal-spirits-for-elanco-pet-care-companys-stock-is-well-positioned-for-gains-51599848313

Elanco Animal Health shares are up about 15% since the company closed its nearly $7 billion acquisition of Bayer Animal Health in early August. That rally has been a long time coming for investors in the animal-care company.

Elanco (ticker: ELAN) stock was down about 2% from when it was spun out from Eli Lilly (LLY) two years ago until the Bayer acquisition became official. Now, Elanco has a good opportunity to change the trajectory of its stock performance, in part because it will have more global reach with the Bayer unit in the fold. The acquisition catapults Elanco into the No. 2 spot in animal-health market share, behind Zoetis (ZTS)…

Companion animal, or pet, products, including canine treatments for heartworm and osteoarthritis, are for the most part faster-growing with higher margins than many livestock products. …A big plus from the Bayer deal: It increases Elanco’s exposure to pet products to 48% of sales from 38%.

…One of the less favorable consequences of the Bayer deal is that Elanco now has a lot of debt on its balance sheet. Risinger estimates that the company’s net debt to 2021 earnings before interest, taxes, depreciation, and amortization is a hefty 5.2 times…

… Elanco fetches about 27 times the $1.02 a share that analysts expect the company to earn next year, a big discount to about 38 times for Zoetis. Elanco probably won’t close that valuation gap soon, considering that Zoetis has better organic sales growth, which excludes acquisitions, and a stronger balance sheet. But it certainly could narrow the gap and give its stock price a nice boost.

In other words, ELAN may be a better buy than ZTS, but it’s not exactly cheap.

[DewDiligence]

ELAN acquires KIN for $9.25/sh cash—a 46% premium to yesterday’s close:

https://www.businesswire.com/news/home/20210616005286/en 925/634

Elanco Animal Health Incorporated (NYSE: ELAN) and Kindred Biosciences, Inc. (KindredBio, NASDAQ: KIN) today announced the parties have entered into a definitive agreement for Elanco to acquire KindredBio, a biopharmaceutical company focused on developing novel pet therapeutics based on validated human targets. The acquisition further accelerates Elanco’s expansion in the attractive pet health market, particularly advancing Elanco’s presence in the fast-growing billion-dollar dermatology category.

The nominal deal value is $440M.

KIN has had a rough ride since its 2014 IPO (#msg-94913213), but pet healthcare is a hot sector.