Teva Pharmaceutical Industries, based in Israel, has signed a definitive agreement with Allergan to acquire Allergan Generics for $40.5 billion.

Allergan will receive $33.75 billion in cash and shares of Teva valued at $6.75 billion, representing an estimated less than 10% ownership stake in Teva, with the number of Teva shares determined based on Teva’s volume-weighted average trading prices during the 15 days prior to the announcement and five days following the announcement.

The transaction was unanimously approved by the boards of directors of Teva and Allergan and is expected to close in the first quarter of 2016.

Erez Vigodman, president and CEO of Teva, said, “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. Our respective portfolios of generic medicines and applications are highly complementary, providing Teva with high-quality growth and earnings visibility, and the scale and resources to expand upon our specialty capabilities.”

Teva expects to achieve cost synergies and tax savings of approximately $1.4 billion annually, largely achievable by the third anniversary of the closing of the transaction. Teva expects the savings to come from efficiencies in operations, G&A, manufacturing, and sales and marketing.

Teva will have advanced R&D capabilities in the generics industry with approximately 320 combined pending ANDAs in the U.S.

Teva’s acquisition of Allergan Generics will position Teva to enhance the global scale of its sales and R&D platforms. Together, Teva and Allergan Generics will have a commercial presence across 100 markets.

The acquisition will help eliminate inefficiencies and duplications in the global generics space and will allow Teva to better focus resources and efforts in complex generics, biosimilars and specialty products in key therapeutic areas.

Teva is acquiring Allergan Generics on a cash free and debt free basis. The transaction consideration of $40.5 billion consists of a combination of cash and stock. Teva will pay Allergan $33.75 billion in cash, which will be financed through a combination of new equity, debt financing and cash on hand. Teva expects to maintain capital structure, balance sheet and financial policies consistent with investment-grade credit metrics.

The transaction does not require a Teva or Allergan stockholder vote. Teva expects to obtain financing commitments promptly within 15 business days, which it is highly confident it will be able to arrange on attractive terms. Allergan will be entitled to terminate the transaction if Teva fails to obtain these commitments.

Teva has withdrawn its cash-and-stock proposal to acquire all of the outstanding ordinary shares of Mylan, and Teva does not intend to continue to pursue a transaction with Mylan at this time.

“In light of our strategic acquisition of Allergan Generics our board and management team has decided that withdrawing the proposal to acquire Mylan is in the best interests of Teva stockholders,” said Vigodman. “Since announcing the proposal to acquire Mylan on April 21, we have appreciated the opportunity to talk with many of our investors about the future of the generics industry, and we are confident our proposed transaction with Allergan best positions Teva to succeed in today’s industry landscape.

“We continue to believe that a combination of Teva and Mylan would have made sense for our companies, our respective stockholders and the healthcare industry as a whole. However, despite our clear commitment to consummating a transaction, and our conviction that we ultimately would have succeeded in acquiring Mylan, we believe we have an even greater opportunity to create compelling, sustainable value for Teva’s stockholders through our transaction with Allergan—and we acted quickly to seize the opportunity. Our agreement with Allergan will reinforce Teva’s strategy to create an even stronger business model in the industry and will position us well to grow the business and better serve our customers and patients.”

Teva intends to review its options with respect to its ownership of approximately 4.6% of the outstanding ordinary shares of common stock of Mylan.