In a bid to diversify its business and expand its animal health business, the HealthCare unit of Bayer ( BAYRY - Analyst Report ) inked a deal with Teva Pharmaceutical Industries Limited ( TEVA - Analyst Report ) to buy the animal health unit of the latter in the US. The deal, worth up to $145 million, is expected to close next year. The closure of the transaction is dependent on antitrust clearance in addition to the satisfaction of other conditions.

The deal will give Bayer access to Teva’s 300-employee manufacturing site at St. Joseph. Per the terms of the deal, Germany’s Bayer will make an upfront payment of $60 million to the Israel-based Teva in addition to milestone payments up to $85 million.

The transaction makes sense from the view points of both companies. While the move will enable Bayer to boost its companion animal and food animal product portfolios in the US, it will enable Teva to focus on developing, manufacturing and marketing branded and generic drugs globally -- Teva’s primary areas of strength.

The inclusion of Teva’s US animal health unit will not only add reproductive hormones to Bayer’s product portfolio but also provide multiple anti-infective solutions for treating infections in livestock to Bayer’s food animal unit. Following the completion of the deal, Bayer’s companion animal unit will boast of dermatological, pet wellness and nutraceutical offerings.

We note that Bayer has been quite active on the acquisition front lately. Last month, the CropScience unit of Bayer acquired AgraQuest, Inc., formerly a global supplier of innovative biological pest management solutions, for $425 million (approximately €340 million) in addition to milestone payments. The acquisition has boosted Bayer’s fruits and vegetables business while building a strong technology platform based on "green" products.

Our Recommendation

We currently have a Neutral recommendation on Teva. The stock carries a Zacks #3 Rank (Hold) in the short run. Bayer carries a Zacks #1 Rank (Strong Buy) in the short run.