Merck (MRK.N) said on Monday would buy Elanco Animal Health's (ELAN.N) aqua business for $1.3 billion in cash, strengthening its portfolio of aquatic pet health products.
Share of Elanco rose more than 7% to $15.8 in premarket.
Merck's animal health unit had acquired fish health product maker Scan aqua and fish conservation monitoring equipment makers Vaki and Antelliq Corp in 2019.
The deal, expected to be completed mid-year, will help Merck gain access to DNA-based vaccine Clynav, which protects Atlantic salmon against pancreas disease, and Imvixa, an anti-parasitic sea lice treatment.
The addition of Elanco's products will establish Merck Animal Health as a leader in aqua, said Rick DeLuca, president of Merck Animal Health.
Merck will also gain access to Elanco's manufacturing facilities in Canada and Vietnam, as well as a research facility in Chile.
Elanco said the transaction will trim its debt by $1.05 billion to $1.1 billion, or 20%, and help boost investments in its pet healthcare products, a larger market.
Elanco sees greater return on per dollar investment from pet health and livestock sustainability pipeline, CEO Jeff Simmons said in an interview.
The company has six late-stage products in its pet health and livestock sustainability pipeline, which will be launched in the U.S. market by 2025, if approved.
Total sales from the aqua business were $42 million in the third quarter, representing about 4% of Elanco's total revenue.
The valuation of Elanco's aqua business at $1.3 billion makes sense, considering aquaculture's higher growth and strong margin relative to other animal proteins, said Piper Sandler analyst David Westenberg.
