Elanco

Shares of Elanco Animal Health (ELAN) fell nearly 1% to $26.17 Monday after Bank of America/Merrill Lynch downgraded the animal health company to neutral from buy.

Analyst Michael Ryskin said he downgraded the Greenfield, Indiana-based company because of too much uncertainty over the company's $7.6 billion deal to buy an animal health unit of Germany's chemical-pharmaceutical giant Bayer (BAYRY) . Elanco will pay for the unit with 70% cash and the remainder in stock.

"There is a bull case to be made that the deal may be a positive in the long-run (greater scale, improved margins)," Ryskin wrote. "However, lack of clarity on new growth profile and divestments, as well as overhangs from equity dilution are near-term risks."

Ryskin added that he saw "there is greater overlap and, thus, risk of anti-trust concerns in the U.S., and we may see a geographically-limited divestment, similar to when Elanco acquired Novartis AH in 2015 and divested Sentinel in the U.S., but retained it outside of the U.S."

"We think these questions are unlikely to be answered until nearer to deal close (expected mid-2020), and we move to Neutral as we await more clarity on the deal," he said. "With the caveat that specifics on which products are divested will impact the growth profile, it's highly likely that the combined company will have slower revenue growth in the near-term."

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