Teva Pharmaceutical Industries Ltd. and Barr Pharmaceuticals, Inc. announced that they have signed a definitive agreement under which Teva will acquire Barr, the fourth largest generic drug company worldwide. Under the terms of the agreement, each share of Barr common stock will be converted into $39.90 in cash and 0.6272 Teva ADRs.

Israel-based Teva, the world's largest generic drug company, plans to buy New Jersey-based Barr for $66.50 per share in cash and stock.

The price represents a 42 percent premium to Barr's closing price on Wednesday. Barr shares rose 22 percent on Thursday on reports of a Teva acquisition. In pre-market trading on Friday, Barr shares rose 6.7 percent to $60.99, while Teva shares fell 4.4 percent to $39.25.

The combined company would be a generic powerhouse employing about 37,000 people globally and operating directly in more than 60 countries. Together, Barr and Teva had revenue of about $11.9 billion in 2007.

By acquiring Barr, No. 5 in the U.S. in generic prescriptions, Teva would move closer to its stated goal of boosting its U.S. market share to 30 percent of generic prescriptions by 2012, from about 20 percent. Still, a Teva-Barr tie-up appears to pose no major U.S. antitrust issues that would scuttle the deal, analysts have said.

Teva expects the deal will generate at least $300 million in annual cost savings within three years and provide additional cost savings beyond 2011. Lehman Brothers acted as financial adviser to Teva in the transaction, while Banc of America Securities advised Barr.