Full Press Release Details
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
Elanco Announces Restructuring to Drive
Synergies from Bayer Animal Health Acquisition
Initial Actions Expected to Create at
Least $100 Million in Annual Savings
De-Leveraging Begins with $100 Million
GREENFIELD, Ind. (September 30, 2020) 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
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
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
"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."
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.