Eli Lilly to buy J&J's animal health business

NEW YORK (Reuters) - Eli Lilly & Co (LLY.N) plans to buy Johnson & Johnson's (JNJ.N) animal health unit for an undisclosed sum to bolster Lilly's presence in Europe, signaling further consolidation in the business.

Separately, privately held Lextron Inc agreed on Monday to acquire rival Animal Health International AHII.O for $111 million in cash, lifting Animal Health shares almost 10 percent.

Sales from Lilly's Elanco animal health business, from pet medicines to drugs and food additives for farm animals, jumped 15 percent to $1.4 billion last year. They accounted for about 6 percent of company revenue and far outpaced growth of Lilly's core prescription-drugs business.

Lilly is hoping Elanco, the world's fourth-biggest animal health business, will remain a bright spot in coming years as many of the Indianapolis-based drugmaker's top prescription drugs face plunging sales due to generic competition.

Elanco spokeswoman Colleen Parr Dekker said J&J is not a global player in the animal health business, with annual revenue substantially below $1 billion. But its approximately 50 products, primarily for swine and poultry, will strengthen Elanco's presence in Europe and diversify its food-animal portfolio, she said.

"Elanco was the fastest growing animal health business last year and we are continuing to look at growth opportunities at a time when other companies are consolidating," Dekker said.

The world's largest animal health company, Intervet/Schering-Plough, had sales of $2.94 billion last year. It was created by Merck & Co's (MRK.N) purchase in late 2009 of Schering-Plough Corp.

Pfizer (PFE.N) ranks No. 2, with 2010 animal health sales of almost $2.9 billion, with Sanofi-Aventis' (SASY.PA) Merial business close behind at $2.6 billion. Novartis (NOVN.VX) trails Elanco, in fifth place, with animal health sales last year of $1.2 billion. Merck and Merial hope later this year to re-form a joint venture that would dominate the industry.

Lextron on Monday said it will acquire all outstanding shares of Animal Health for $4.25 per share, with support from funds affiliated to private equity firm Leonard Green & Partners LP.

Lextron's offer represents a premium of 11 percent to Animal Health's Friday closing share price, the companies said.

Lextron, which expects to close the deal by June 30, will also assume about $140 million of Animal Health's debt.

Animal Health distributes drugs, vaccines and other veterinary products. The companies said the combined organization will be called Animal Health International Inc.

Piper Jaffray is serving as financial adviser to Animal Health, while William Blair & Co is serving as financial adviser to Lextron.

Shares of Animal Health jumped 9.8 percent to $4.21 in early afternoon trading on the Nasdaq. J&J was down 1 percent to $59.07, while shares of Lilly slipped 0.7 percent to $34.63, both on the New York Stock Exchange.

(Additional reporting by Anand Basu in Bangalore and Ben Hirschler in London; Editing by Sriraj Kalluvila and Tim Dobbyn)