Elanco Animal Health has entered into an agreement with Bayer AG to acquire its animal health business in a transaction valued at $7.6 billion, creating one of the largest stand-alone veterinary-medicine companies in the world. The planned transaction is subject to regulatory approval and other customary closing conditions.

Elanco, which was spun off from drug maker Eli Lilly & Company last year, will finance the acquisition with a mix of cash and stock. German drug giant Bayer AG will receive $5.32 billion in cash and $2.3 billion in Elanco Animal Health common shares.  The transaction is expected to close in mid-2020.

“This will create the number two animal-health company,” Elanco Chief Executive Officer Jeffrey Simmons said in an interview.  “We see this as a nice compliment.  The pet owner, the veterinarian and the farmer win in the transaction,” Simmons said.

Elanco, based in Greenfield, Indiana, expects the deal to add to its adjusted earnings per share in the first full year after it closes.  Buying the Bayer division will significantly bulk up its pet business at a time when the agricultural sector has turned more volatile.  Last week, Elanco narrowed its sales guidance as a result of the outbreak of deadly swine flu in Asia, which caused a decline in its farm unit.

“With a larger, more diverse animal-health company, the percentage of the vulnerability will be less,” Simmons said, adding that he expected the current swine flu outbreak will eventually pass.

Pfizer’s Inc.’s decision to spin out its animal-health business, Zoetis Inc. in 2013 has prodded other drug makers to shed their veterinary units.  The businesses are often stable, profitable operations whose fortunes are more tied to macroeconomic trends like rising global wealth and protein consumption, instead of risky bets on drug research.