Elanco Announces Restructuring to Drive Synergies From Bayer Animal Health Acquisition
September 30 2020 - 7:30AM
Business Wire
Initial Actions Expected to Create at Least
$100 Million in Annual Savings De-Leveraging Begins with $100
Million Term Loan Repayment
Elanco Animal Health Incorporated (NYSE:ELAN) today announced
its first business restructuring just two months following the
closing of its acquisition of Bayer Animal Health. The company also
noted it has started to de-lever by making a $100 million payment
on its term loan.
Elanco leadership has quickly evaluated the capabilities,
structure and staffing of the combined business required to meet
its goal of being an agile, fit-for-purpose global leader dedicated
exclusively to animal health. As part of this effort, today the
company is announcing its intent to eliminate more than 900
positions across nearly 40 countries, primarily in Sales and
Marketing, but also R&D, Manufacturing and Quality, and back
office support. These actions begin to reduce duplication, drive
efficiency and optimize the company’s footprint across geographies,
particularly Basel, Switzerland.
The outlined initiatives are the first phase of Elanco’s
disciplined process to capture greater value. These efforts build
on Elanco’s productivity agenda in its Innovation, Portfolio and
Productivity (IPP) Strategy, which has included consolidating
suppliers and contract manufacturers.
“The team has rapidly applied our historic integration
experience to move with speed and decisiveness and capture initial
synergies even during the continued challenges created by the
COVID-19 pandemic,” said Jeff Simmons, president and CEO of Elanco.
“After our early view of the combined business, we have full
confidence in delivering $275 million to $300 million in synergies,
with the first two-thirds coming in the first 30 months. Today’s
actions will reduce duplication and increase efficiency within our
global footprint, while the team builds longer term plans around
procurement savings, SKU optimization and streamlining
manufacturing processes. While decisions that affect our employees
are always difficult, we remain committed to treating affected
employees with our guiding value of respect and following all local
consultation processes.”
The cost of the proposed actions is expected to be between $190
million and $210 million with approximately $170 million to $190
million in severance and approximately $20 million in asset
impairments and other charges. As part of the transaction with
Bayer A.G., $35 million was reflected in the purchase price
attributable to Elanco’s restructuring costs. Cash severance
payments will be distributed over the next two years. Elanco
expects to incur a restructuring charge of $130 million to $145
million in Q3 2020 along with $40 million to $45 million in Q4
2020. The remaining estimated $20 million will be incurred in 2021.
Elanco expects to realize at least $100 million of annual
compensation and benefits savings toward the planned synergy goal
of $275 million to $300 million.
“We see the deal rationale coming to life as we bring together
our longstanding focus on the veterinarian with Bayer’s
direct-to-consumer expertise to open new opportunities,
particularly given pet owners’ increased desire to access care and
products via online, retail, telemedicine, and direct to the
doorstep channels,” Simmons said. “Our team is focused on making
the tough decisions that drive value quickly while enabling our
innovation and growth strategies. Most importantly, moving so fast
in our commercial areas means we now have a larger, stronger team
in place supporting customers to enhance our overall commercial
competitiveness. Today’s proposed actions will ultimately better
position us to advocate for our customers, and to deliver solutions
to their greatest unmet needs.”
De-Leveraging Begins
Elanco has also started repayment against its loan that funded
the Bayer Animal Health acquisition. On September 25, Elanco repaid
$100 million of its $4.275 billion Term Loan B.
“With the acquisition closed and working capital needs
established, we have sufficient liquidity to begin de-leveraging
thanks to strong cash flow in Q2 2020,” said Todd Young, executive
vice president and CFO of Elanco. “We will continue to repay debt
from our operating cash flow in 2021 with a focus on our $500
million note, which is due in August 2021.”
ABOUT ELANCO
Elanco Animal Health Incorporated (NYSE:ELAN) is a global leader
in animal health dedicated to innovating and delivering products
and services to prevent and treat disease in farm animals and pets,
creating value for farmers, pet owners, veterinarians,
stakeholders, and society as a whole. With nearly 70 years of
animal health heritage, we are committed to helping our customers
improve the health of animals in their care, while also making a
meaningful impact on our local and global communities. At Elanco,
we are driven by our vision of Food and Companionship Enriching
life and our Elanco Healthy Purpose™ CSR framework – all to advance
the health of animals, people and the planet. Learn more at
www.elanco.com.
This press release contains forward-looking statements (as that
term is defined in the Private Securities Litigation Reform Act of
1995) about the anticipated cost savings, our ability to capture
synergies as a result of our recent acquisition of Bayer Animal
Health, and anticipated charges relating to the restructuring, and
reflects Elanco’s current belief. Forward-looking statements are
based on our current expectations and assumptions regarding our
business and other future conditions. Because forward-looking
statements relate to the future, by their nature, they are subject
to inherent uncertainties, risks and changes in circumstances that
are difficult to predict. As a result, our actual results may
differ materially from those contemplated by the forward-looking
statements. For further discussion of these and other risks and
uncertainties, see Elanco’s most recent filings with the United
States Securities and Exchange Commission. Except as required by
law, Elanco undertakes no duty to update forward-looking statements
to reflect events after the date of this release.
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version on businesswire.com: https://www.businesswire.com/news/home/20200930005260/en/
Media: Colleen Parr Dekker +1.317.989.7011
colleen_parr_dekker@elanco.com Investor Relations: Tiffany Kanaga
+1.302.897.0668 kanaga_tiffany@elanco.com
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