Company aims to repay loan that financed its acquisition of Bayer Animal Health
Elanco Animal Health Inc. says it will restructure its business — eliminating hundreds of positions — and has started to deleverage by making a US$100 million payment on the loan that financed its acquisition of Bayer Animal Health.
“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,” the company said in a press release. “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.”
Elanco completed its US$6.89 billion acquisition of Bayer Animal Health on August 3.
“After our early view of the combined business, we have full confidence in delivering US$275 million to US$300 million in synergies, with the first two-thirds coming in the first 30 months,” said Jeff Simmons, president and CEO of Elanco, in the announcement. “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.”
Elanco said the cost of the proposed actions is expected to be between US$190 million and US$210 million with approximately US$170 million to US$190 million in severance and approximately US$20 million in asset impairments and other charges.
As part of the transaction with Bayer, US$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 US$130 million to US$145 million in the third quarter, and US$40 million to US$45 million in the fourth quarter. The remaining estimated US$20 million will be incurred in 2021. Elanco expects to realize at least US$100 million of annual compensation and benefits savings toward the planned synergy goal of US$275 million to US$300 million.
Elanco reported its second quarter revenue was down 25% mostly due to channel inventory reduction and effects from the COVID-19 pandemic. Total revenue for the second quarter was US$586.3 million, the company reported on July 30. Third quarter revenue is expected to be between US$660 million and US$710 million, excluding revenue from divestitures and with continued impact from the COVID-19 pandemic, primarily in livestock.
Repayment begins on loan
Elanco has also started repayment against its loan that funded the Bayer Animal Health acquisition. On September 25, Elanco repaid US$100 million of its US$4.275 billion Term Loan B.
“With the acquisition closed and working capital needs established, we have sufficient liquidity to begin deleveraging thanks to strong cash flow in Q2 2020,” said Todd Young, executive vice president and chief financial officer of Elanco. “We will continue to repay debt from our operating cash flow in 2021 with a focus on our US$500 million note, which is due in August 2021.”