Elanco Animal Health (NYSE:ELAN) has agreed to sell its Aqua business (medicines for aquatic species) to Merck Animal Health, a unit of Merck (NYSE:MRK), in a $1.3 billion all-cash deal. The announcement has sent Elanco shares nearly 6% higher today.
The M&A deal is expected to enable Elanco to invest in larger markets that offer higher earnings potential over the medium and long term. Further, proceeds from the sale are expected to help Elanco bring its net debt-to-adjusted EBITDA multiple to the high-3x to low-4x range by the end of next year.
This strategic move enhances Elanco’s focus on pet health and livestock sustainability. The company also expects a slew of approvals, including those for Credelio Quattro, Zenrelia, and Bovaer, in the first half of this year. The divested Aqua business is projected to bring in $175 million in revenues for 2023. The acquisition also promises to boost Merck Animal Health’s Aqua product portfolio, complementing the company’s warm water vaccine offerings.
Further details on the transaction are awaited on February 26, when Elanco is slated to announce its fourth-quarter results. Analysts expect Elanco to post an EPS of $0.10 on revenue of $1 billion for the quarter.
Is ELAN a Good Stock to Buy?
With today’s price gains, Elanco’s share price has climbed nearly 25% over the past six months. Overall, the Street has a Moderate Buy consensus rating on Elanco, and the average ELAN price target of $16.21 implies a modest 3.2% potential upside in the stock.
Read full Disclosure
