In the latest spectacular takeover to occupy the attention of the international pharmaceuticals sector, Israeli generics giant Teva has agreed to pay $40.5 billion cash and stock to acquire the generics activities of newly merged Allergan.

The deal, comprised of $33.75 billion in cash and $6.75 billion in shares would further cement Teva’s position as world’s largest manufacturer of generic drugs. The company said it expected cost synergies and tax savings of $1.4 billion annually by the third anniversary of the transaction.

The largest takeover in Israeli history would allow Teva stronger economies of scale, which, observers note, are crucial in the low-margin generics business. The combined company would have pro forma revenues of $26 billion and EBITDA of $9.5 billion in 2016.

In exchange for swallowing the Allergan business, Teva has abandoned its pursuit of Netherlands-based former American drugmaker Mylan, for which it had offered a similar sum. Analysts said Allergan is a better fit as it will improve the Israeli company’s distribution network.

To clinch the transaction, Teva is seen as having to divest some activities to pacify regulatory authorities. The company said it had already identified candidates – adding it expected fewer divestments to be mandated than in a deal with Mylan.

Allergan, in turn, has already said it will use the $36 billion net proceeds to help fund additional acquisitions.

Following the sale of its generics business, the company said it planned to focus on seven main therapeutic areas. In terms of unmet medical needs, these include esthetics, eye care, central nervous system therapies and gastrointestinal therapies.

Despite having shaken off Teva’s advances and receiving the EU’s regulatory blessing for a move on Perrigo, Mylan’s position is seen to have now weakened, as following news of the Teva-Allergan deal, its shares plunged almost 14%.

The company had been expected to fund roughly two-thirds of the Perrigo acquisition with its stock. Its bid for the generics rival is being supported by its largest shareholder, drugmaker Abbott.