Israeli drug firm Teva buys Allergan’s generics business for $40 billion by Geoffrey Smith @FortuneMagazine July 27, 2015, 7:38 AM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons Israel’s Teva Pharmaceuticals Industries Ltd TEVA said Monday it’s dropping its hostile bid for Mylan Inc. MYL and hooking up instead with Allergan Inc. AGN . Tel Aviv-based Teva will buy Allergan’s generics business for $40.5 billion in cash and stock, in a deal that will catapult it into the world’s top 10 pharma companies. The deal is the latest in a series of eye-popping mergers in the global pharma business. combining the world’s biggest and third-biggest makers of generic drugs. It is a response to increasing pressure from cash-strapped health systems around the world that are trying to keep costs under control. It’s also the biggest ever acquisition by an Israeli company. It’s also another dramatic twist in the battle for control of Botox-maker Allergan, which agreed in March to be acquired by Actavis Inc. ACT rather than fall into the hands of Canada’s Valeant Pharmaceuticals VRX . Valeant’s bid had been backed by activist investor Bill Ackman. Actavis subsequently renamed itself Allergan. Mylan had rejected Teva’s approach in April because it didn’t want to sell out for the “low-quality and high-risk currency” of Teva’s shares, especially in the light of the civil war in Teva’s boardroom last year that led to both the chairman and chief executive losing their jobs. However, the market has increasingly appeared to accept chief executive Ered Vigodman’s assurances that such problems are now a thing of the past, taking the Israeli company’s stock to within touching distance of its all-time high in 2010. Allergan has agreed to take Teva shares worth $6.75 billion as part of the deal, giving its a stake in the Israeli company estimated at just under 10%. Teva is paying the remaining $33.75 billion in cash, which will allow Allergan to strengthen its balance sheet after taking on $21 billion in debt to finance the Actavis/Allergan deal in March. Teva said the deal had been approved by both boards and should close in the first quarter of next year.