As per the terms of the deal, Bayer will receive $5.3bn (£4.37bn) in cash and will be issued $2.3bn (£1.9bn) worth shares in the US-based Elanco Animal Health.
The German firm intends to sell its stake in the US animal health company in the future.
The animal health business being sold by Bayer had sales of $1.8bn (£1.48bn) in fiscal 2018. The unit develops and markets products and solutions to prevent and treat diseases in companion and farm animals.
Some of its products include The Advantage range of flea, tick and worm control products and Seresto collar that kills and repels ticks and flies on dogs.
Bayer board of management chairman Werner Baumann said: “The exit of the Animal Health business marks the largest transaction in the series of portfolio measures initiated by Bayer in November 2018.
“The company had previously announced the divestiture of its Consumer Health brands Coppertone and Dr. Scholl’s along with the sale of its 60-percent stake in German site services provider Currenta.
“We are therefore delivering ahead of schedule on one of the key priorities for driving value creation that we communicated at our Capital Markets Day in December 2018.”
The combination of Bayer’s animal health unit and Elanco Animal Health is said to be highly complementary and will form the second leading animal health company in the world. The transaction is also said to improve the US firm’s portfolio of global brands, while strengthening its innovation capabilities and research and development pipeline.
Elanco Animal Health president and CEO Jeffrey Simmons said: “Combining Elanco’s strong relationship with veterinarians and Bayer’s leadership in retail and e-commerce will ultimately benefit all our customers.
“We look forward to joining our complementary portfolios and capabilities to build a fully focused animal health company, providing a sustained flow of innovation for farmers, veterinarians and pet owners.”
Subject to antitrust clearance and the satisfaction of customary closing conditions, including, the transaction is expected to be closed in mid-2020.