In yet another mammoth deal in the pharmaceutical sector, Israel-based Teva Pharmaceutical has agreed to buy its Ireland-based peer Allergan Plc's generic drugs unit for $40.5bn (£26.1bn, €36.9bn) in cash and stock.
As per the terms, Teva will pay $33.75bn in cash and offer $6.75bn of its stock for Allergan. Meanwhile, Allergan will retain 50% of Teva's future economics from generic lenalidomide, a blood cancer drug.
Teva will acquire Allergan's legacy Actavis global generics business, including the US and international generic commercial units, third party supplier Medis, global generic manufacturing operations, the global generic R&D unit, the international over-the-counter commercial unit and some established international brands.
The transaction has been unanimously approved by the boards of both companies, and is expected to close in the first quarter of 2016.
"This transaction delivers on Teva's strategic objectives in both generics and specialty," Teva CEO Erez Vigodman said in a statement.
"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."
Teva expects the acquisition to contribute $2.7bn in 2016 earnings before tax, depreciation and amortisation (Ebitda), excluding synergies. It also expects to achieve cost synergies and tax savings of about $1.4bn annually, starting from the third year after closing the deal.
Allergan says the sale of the unit comes as it looks to simplify its business model, while ensuring its strong position in seven therapeutic areas, including eye care, gastroenterology (GI), aesthetics, women's health, CNS, urology and anti-infectives.
Following the transaction, Allergan will have a simplified manufacturing network of 12 plants globally and a mid-to-late-stage research and development (R&D) pipeline with 70 projects.
The company said it will use the cash proceeds to further accelerate its growth prospects of its branded business. It intends to "add scale in existing therapeutic areas, expand into new therapeutic areas and geographies and evaluate strategic transformational deals".
"This transaction will accelerate Allergan's evolution into a branded growth pharma leader, enable a sharpened focus on expanding and enhancing our global branded pharmaceutical business and strengthen our financial position to build on our proven track-record of value creation led by effective capital deployment," Brent Saunders, CEO of Allergan, said in a statement.