Pharmaceutical market buzz last month had it that private equity investors in Europe and the US were lining up to buy the animal health business Bayer is preparing for sale to pare down debt after its $63 billion takeover of Monsanto in 2018.

July’s buzz looks a little different. According to the Reuters news agency, citing three unnamed sources, Bayer has approached Eli Lilly’s animal health spinoff Elanco about a possible merger of the two veterinary businesses.

Elanco is regarded as the market’s fourth largest player, with Bayer at number five – the top three are Pfizer spinoff Zoetis, Boehringer Ingelheim and US Merck – so that a fusion in the bottom tier could create a powerful contender.

Reuters notes, however, that there are caveats to this scenario. In particular, Elanco may not have the cash to pay Bayer’s asking price. Although the company has a market capitalization of more than $12 billion, it is also saddled with a debt burden of $2.5 billion passed on in the Lilly spinoff.

A deal here would likely have to see that Bayer retain an interest in the business initially. This would reduce its maneuvering scope, especially as its liquidity has sunk parallel to its share price on the back of the thousands of Roundup lawsuits.

Up to now, Bayer has declined to be drawn into the speculation, saying only that that it is on track to exit animal health, with the primary focus on an outright sale.

Due to the reportedly enormous private equity interest in its animal health unit, Reuters points out that Bayer is not dependent on a deal with Elanco; however, the fact that the German group pushed back an auction process meant to start in June hints that it may be engaged in serious talks with Elanco.

Even if the two sides could reach a deal, the news agency says regulators may not go for it. The US Federal Trade Commission (FTC), Reuters points out, has been cracking down on mega deals in the drugs sector of late.

Before any arrangement can be worked out, analysts say Bayer and Elanco will need to focus on eliminating potential overlap in the market for flea and tick treatments, where Bayer is one of the top players.