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Bayer steps away from potential deal for Elanco

Bayer's chief executive has distanced the firm from any potential bid for Elanco. 

Bayer Animal Health was a candidate for a potential merger with Elanco as Eli Lilly explores several strategic avenues for its animal health business.

In an investor call following Bayer's recent third-quarter results, chief executive Werner Baumann said: "Animal health is a business that continues to grow at least in line with markets. So as we see, we don't have an issue in keeping our relative weight."

Bayer is currently in the midst of closing a major $66 billion deal for agricultural giant Monsanto, which is limiting its abilities to undertake any other large transactions. The company has also recently spun off a high-tech polymers business called Covestro.

"Of course, we see some of the assets that are obviously up for strategic review, as Lilly just announced a couple of days ago," Mr Baumann said. "But we are currently busy and there is not an awful lot of things that our organization would volunteer to venture into at this point in time.

"Quite frankly, I also think it is prudent for us as a board to stay focused on the task at hand, whether they are operational in nature or whether it's actually bringing the transaction – the Monsanto acquisition – home and of course, also finishing up on Covestro. This is what we need to focus on.

"I really believe that these are also the biggest value levers for our shareholder base and we will not let ourselves be distracted by anything else for the next time to come."

Merck reaction

While Merck chief executive Kenneth Frazier did not address any potential deal for Elanco directly, he supported the retention of the company's animal health unit.

In Merck's investor call for the third quarter, Mr Frazier stated: "We see animal health and the innovation we can create through that portal as a pillar of growth for the company.

"As we noted this quarter, it surpassed $1 billion for the first time inside our portfolio, which is meaningful. We continue to see it going forward as a key growth driver because it has healthy margins as well as a strong market outlook. So, from our perspective, we see it fitting very nicely and augmenting our growth as an overall company.

"We intend, where we find opportunities, to further augment that business with additional business development. So it's an important part of our business."

Aside from Merck and Bayer, there are no other businesses in the animal health space large enough to purchase Elanco. This suggests the firm may opt for a merger outside of the animal health space – maybe in the wider agricultural sector – or for an initial public offering to become a standalone business. 

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