US generic drug maker Watson Pharmaceuticals Inc yesterday agreed to buy Swiss rival Actavis, for around $5.60 billion (€4.25 billion), in order to expand in Europe.

The proposed acquisition will lift Watson the world's third-biggest generic drugmaker with expected 2012 revenue of $8 billion.

Watson, which currently is the fifth-largest pharmaceutical company in the US, will pay €4.25 billion upfront and up to 5.5 million Watson shares, valued at around €250 million, if Actavis reaches specific milestones.

Actavis, which itself has made 25 acquisitions since its founding in 1965, had 2011 revenues of about $2.5 billion.

Actavis has one of the broadest product portfolios and strongest pipelines in the generics industry. It has around 1,000 medicines present on the market and registered in more than 70 countries.

The Zug, Switzerland-based company operates in about 40 countries and has modern development and manufacturing facilities in Europe, the US and Asia producing a variety of medicines in different formulations including tablets, capsules, injectables, steriles, suppositories, sprays, powders, oral liquids and semi-solids.

It was acquired by private-equity firm Novator in 2007 for around $5 billion and then went on an acquisition spree but incurring huge debts in the process.

Watson CEO Paul Bisaro said in a statement that the acquisition would expand its position in Russia and Central and Eastern Europe, and complement its products in the US.

Post-acquisition, Watson said that more than 40 per cent of its generic drug revenue will come from outside the US, and will be able to reduce its annual costs by $300 million after three years.

"In a single, commercially compelling transaction, we more than double Watson's international access and strengthen our commercial position in key established European markets as well as exciting emerging growth markets, including Central and Eastern Europe and Russia," said Bisaro,

"The transaction achieves Watson's stated strategic objective of expanding and diversifying our business into a truly global company. Once the transaction is completed, approximately 40 per cent of our generic revenues will come from markets outside of the US."

The combined company will become one of the top 3 in 11 markets and hold a top 5 market position in 15 markets. It will have commercial operations in more than 40 countries.

Actavis' exceptional global strength, including leading market positions in key established commercial markets and emerging markets in Central and Eastern Europe and Russia, complements Watson's position in established markets including the UK, France and Australia.

Watson said that the acquisition will expand its core leadership position in modified release, solid oral dosage and transdermal products into semi-solids, liquids and injectables.

New Jersey-based Watson, which holds the rights to make Pfizer's cholesterol blockbuster drug Lipitor and competes with Teva Pharmaceutical, Mylan Inc and Ranbaxy Laboratories, will expand in Europe and Asia with the acquisition of Actavis.

Watson already marked its presence in Europe last year when it acquired Greece-based Specifar Pharmaceuticals for $562 million.

Early this year, it also became the fifth largest generic pharmaceutical company in Australia when it acquired the Australian and South East Asian generic drugs business of Bangalore-based Strides Arcolab for $396 million.

Bisaro said in January at the JPMorgan Chase health-care conference in San Francisco that his company was interested in buying either a generic or brand-name drugmaker in order to boost its pipeline in women's health and urology.

Watson's generics division markets over 150 drugs, including oral contraceptives, the generic version of the opiate narcotic pain medication Vicodin, as well as Hydrocodone Bitartrate/APAP tablets.