Jul 27, 2015 4 min read

Israel’s Teva Pharmaceutical Industries Ltd. said Monday it is purchasing Dublin-based Allergan PLC’s generic pharmaceuticals business for $40.5 billion, in what Israeli analysts called the largest-ever acquisition by an Israeli company.

Statements from both companies say the deal sees Allergan receiving $33.75 billion in cash and shares of Teva valued Monday at $6.75 billion.

In light of the acquisition, Teva said it was withdrawing its $40 billion-plus takeover offer for pharmaceuticals company Mylan N.V. Mylan operates from Southpointe II in Cecil Township, but reincorporated in the Netherlands earlier this year for tax reasons.

Word of the acquisition saw Teva shares shoot up 13 percent in pre-opening trading on the Nasdaq. Trading in Teva shares on the Tel Aviv Stock Exchange halted over the news of the sale.

The Israeli pharmaceutical giant is the world’s largest generic drugmaker. It said in a statement that the acquisition would provide patients with more access to affordable medicines.

“Through our acquisition of Allergan Generics, we will establish a strong foundation for long-term, sustainable growth, anchored by leading generics capabilities and a world-class late-stage pipeline that will accelerate our ability to build an exceptional portfolio of products – both in generics and specialty as well as the intersection of the two,” Erez Vigodman, president and CEO of Teva, said in a statement.

Brent Saunders, CEO and president of Allergan, said in a statement the sale would help his company enhance its “global-branded pharmaceutical business and strengthen our financial position.”

Teva’s leadership has been saying for months that it believes some of the biggest generic drug companies should combine in order to save money and become more efficient.

A big deal like this would allow the drugmaker to improve its profitability by cutting jobs and other overlapping costs from the combined businesses. It also would increase its leverage in negotiating drug prices with insurers and other payers, an ever-important piece of leverage in key markets like the United States, where insurers, employers and other payers are pushing to hold down rising costs that have outpaced inflation for years.

Generic drugs are less expensive than name-brand drugs, but the prices of some generics have soared due to a lack of competition or shortages brought on by manufacturing problems.

Teva’s deal comes as other key health care players also make plans to muscle up their negotiating leverage through acquisitions. U.S. hospital systems are buying doctor practices and consolidating.

The second-largest U.S. health insurer, the Blue Cross-Blue Shield carrier Anthem Inc., is buying rival Cigna for $48 billion in a deal that would make it the nation’s biggest insurer by enrollment. Aetna Inc., the nation’s third-largest insurer, also plans a $35 billion bid for Humana Inc.

Mylan had resisted Teva’s advances for three months. Executive Chairman Robert J. Coury issued a statement Monday on Mylan’s website, newsroom.mylan.com, saying: “We congratulate Teva on their agreement to acquire Allergan’s generics business and welcome their continued, and potentially enhanced, commitment to the generics industry. As Teva continues to move forward with their strategy, Mylan’s strategic focus remains unchanged.

“Mylan’s board and leadership team remain steadfast in its commitment to our mission, vision and strategy to provide access to quality medicine to the world’s 7 billion people and deliver value and sustainable growth for our shareholders and other stakeholders.”

His company is now pressing ahead with its offer for Irish drug and ingredients maker Perrigo. Perrigo rejected two offers from Mylan in April.

Mylan said the latter was worth $34.1 billion, or $232.23 per share in cash and Mylan stock. Perrigo disputed the value of those offers, saying they looked richer than they really were because Teva’s offers had driven up the price of Mylan shares.

Mylan’s stock at mid-afternoon Monday was the biggest loser on the S&P 500, with its shares falling $9.89, or 15 percent, to $56.05.