US consumer healthcare company Perrigo is to buy Israeli drug-maker Agis for $818m (£441.5m) in cash and stock.
Generic drug-makers keep costs low by using expired patents
The deal will create a firm with annual sales of $1.3bn, and is the second largest US takeover in Israel.
Perrigo is the US's largest maker of over-the-counter, store-branded pharmaceuticals, and is looking to increase its generic drug production.
Demand for generics, chemically-similar copies of branded drugs, is growing as governments and consumers cut costs.
Generics are a way of bringing cheap medicines to developing nations, and drug-makers often keep costs low by using expired patents.
"With its prescription generic drugs, active pharmaceutical ingredients and over-the-counter pharmaceuticals business, Agis is the perfect partner to facilitate growth," Perrigo chairman and CEO Dave Gibbons told Reuters news agency.
Agis, which already sells generic pharmaceuticals in the US, posted third-quarter net profits of 41.2m shekels ($9.3m) on Monday, compared with 34.5m a year earlier, Reuters reported.
Under the terms of the agreement, Perrigo will pay Agis stockholders 0.8011 share of Perrigo stock and $14.93 in cash for each Agis share.
The offer values Agis at $29.87 a share, 21.4% more than the stock's closing price yesterday. The deal is expected to close during the second quarter of 2005.
Perrigo stockholders will own about 77% of the combined company, and Agis stockholders will own about 23%.
Agis chairman Mori Arkin will stay on at the company as vice-chairman of Perrigo's board of directors.