Elanco Animal Health Incorporated will restructure its business 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, the company will 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 in 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.
“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.”