Bayer has agreed to sell its Animal Health business to US company Elanco for US$7.6 billion.
The deal is expected to be finalised by mid-2020, and Bayer will exit the business over time.
Elanco's business will double in size, making it the world's second largest animal health company.
Elanco chief executive Jeffrey Simmons said the acquisition of Bayer would boost his company's animal health product development.
"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," Mr Simmons said.
"We look forward to adding Bayer Animal Health's employees' breadth of expertise. Ultimately, we believe these increased capabilities and knowledge will allow us to better support the veterinarian, creating a bridge between the pet owner and the veterinarian where relationships don't exist today."
Bayer chief executive Werner Baumann said his company's animal health business were market leaders in the companion and farm animal industries.
"The combination with Elanco will give rise to a leading competitor in the animal health industry, benefiting customers, employees and shareholders alike."
Bayer and Elanco said in a statement that all Bayer Animal Health employees will have at least one year of employment protection against unilateral termination.