CORRECTED-UPDATE 2-Merck to buy Elanco's aqua health business for $1.3 bln (Feb 5)

(Corrects first paragraph of February 5 story to say the business being sold includes aquatic livestock products, not just aquatic pet products)

By Khushi Mandowara and Sriparna Roy

Feb 5 (Reuters) - Merck said on Monday would buy Elanco Animal Health's aqua business for $1.3 billion in cash, strengthening its portfolio of aquatic pet and livestock health products.

Shares of Elanco rose more than 7% to $15.8 premarket.

Merck's animal health unit had acquired fish health product maker Scan aqua and fish conservation monitoring equipment makers Vaki and Antelliq Corp in 2019.

The deal, expected to be completed mid-year, will help Merck gain access to DNA-based vaccine Clynav, which protects Atlantic salmon against pancreas disease, and Imvixa, an anti-parasitic sea lice treatment.

The addition of Elanco's products will establish Merck Animal Health as a leader in aqua, said Rick DeLuca, president of Merck Animal Health.

Merck will also gain access to Elanco's manufacturing facilities in Canada and Vietnam, as well as a research facility in Chile.

Elanco said the transaction will trim its debt by $1.05 billion to $1.1 billion, or 20%, and help boost investments in its pet healthcare products, a larger market.

Elanco sees greater return on per dollar investment from pet health and livestock sustainability pipeline, CEO Jeff Simmons said in an interview.

The company has six late-stage products in its pet health and livestock sustainability pipeline, which will be launched in the U.S. market by 2025, if approved.

Total sales from the aqua business were $42 million in the third quarter, representing about 4% of Elanco's total revenue.

The valuation of Elanco's aqua business at $1.3 billion makes sense, considering aquaculture's higher growth and strong margin relative to other animal proteins, said Piper Sandler analyst David Westenberg. (Reporting by Bhanvi Satija, Khushi Mandowara and Sriparna Roy in Bengaluru; Editing by Savio D'Souza and Sriraj Kalluvila)