Eli Lilly and Company (NYSE: LLY) announced it will initiate an exchange offer today to divest its remaining interest in Elanco Animal Health(NYSE: ELAN).
Elanco completed its initial public offering (IPO) in September 2018, with Lilly retaining an 80.2 percent ownership interest in Elanco.
In the exchange offer, Lilly shareholders can exchange all, some or none of their shares of Lilly common stock for shares of Elanco common stock owned by Lilly, subject to possible proration as described below. The exchange offer is anticipated to be tax-free for participating Lilly shareholders in the United States, except with respect to cash received in lieu of fractional shares. To permit the exchange offer to occur, Lilly has received a waiver of the 180-day lock-up from the joint lead book-running managers of the IPO.
“We were encouraged by the demand for the IPO and have been pleased with Elanco’s performance,” said David A. Ricks, Lilly’s chairman and chief executive officer. “It’s the right time to finalize the separation, let Elanco chart its future as a standalone company, and focus Lilly on our core mission to create human medicines that make life better for people around the world.”
“I want to thank the entire Lilly organization for their support of Elanco throughout our 64-year history, and particularly in the last decade as they supported Elanco’s growth into a diversified, global company with the size and scope to successfully operate independently,” said Jeff Simmons, president and chief executive officer of Elanco. “We will take the Lilly values, heritage and goal to better lives through innovation with us into our next chapter.”
The exchange offer is designed to permit Lilly shareholders to exchange their shares of Lilly common stock for shares of Elanco common stock at a 7 percent discount, subject to an upper limit of 4.5262 shares of Elanco common stock per share of Lilly common stock. If the upper limit is not in effect, for each $100 of shares of Lilly common stock accepted in the exchange offer, tendering shareholders would receive approximately $107.53 of Elanco common stock. These values will be determined by reference to the simple arithmetic average of the daily volume-weighted average prices of Lilly common stock and Elanco common stock on the New York Stock Exchange during the three consecutive trading days ending on and including the second trading day preceding the expiration date of the exchange offer, which would be March 4, March 5, and March 6, 2019, if the exchange offer is not extended or terminated.
The final exchange ratio, reflecting the number of shares of Elanco common stock that tendering shareholders will receive for each share of Lilly common stock accepted in the exchange offer, will be announced by press release by 9 a.m. on the trading day immediately preceding the expiration date of the exchange offer. The final exchange ratio, when announced, and a daily indicative exchange ratio beginning at the end of the third trading day of the exchange offer period, also will be available at www.lillyexchangeoffer.com.
The completion of the exchange offer is subject to certain conditions, including: at least 146.645 million shares of Elanco common stock being distributed in exchange for shares of Lilly common stock validly tendered in the exchange offer; and the receipt of an opinion of counsel that the exchange offer will qualify for tax-free treatment to Lilly and its participating shareholders.
Lilly owns 293.29 million shares of Elanco common stock, which represents approximately 80.2 percent of the outstanding common stock of Elanco. The largest possible number of shares of Lilly common stock that will be accepted in the exchange offer equals 293.29 million divided by the final exchange ratio. Because the exchange offer is subject to proration if it is oversubscribed, the number of shares of Lilly common stock that Lilly accepts in the exchange offer may be less than the number of shares tendered. If the exchange offer is undersubscribed, Lilly would exchange less than 293.29 million shares of Elanco common stock. In that case, Lilly would continue to own an interest in Elanco and, depending on the number of shares of Elanco common stock distributed in the exchange offer, Lilly could retain voting control of Elanco with respect to, among other things, the election of directors. If Lilly continues to own an interest in Elanco after the exchange offer, Lilly intends to conduct additional exchange offers or declare and pay a special dividend of shares of Elanco common stock to all Lilly shareholders to complete the disposition of its Elanco shares.
The exchange offer is voluntary for Lilly shareholders. Investors considering the exchange should consult a licensed investment advisor. No action is necessary for Lilly shareholders that choose not to participate, who retain their existing Lilly shares.
The terms and conditions of the exchange offer will be more fully described in a Registration Statement on Form S-4 (Registration Statement) that Elanco intends to file with the U.S. Securities and Exchange Commission (SEC) and a tender offer statement on Schedule TO to be filed by Lilly with the SEC today.
Goldman Sachs & Co. LLC, J.P. Morgan and Morgan Stanley will serve as dealer managers for the exchange offer.
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