UBS analyst Ricky Goldwasser said the deal value looked in line with other acquisitions in the area.
The combined company would be a generic powerhouse employing about 37,000 people globally and operating directly in more than 60 countries. Together, Barr and Teva had revenue of about $11.9 billion in 2007.
By acquiring Barr, No. 5 in the U.S. in generic prescriptions, Teva would move closer to its stated goal of boosting its U.S. market share to 30 percent of generic prescriptions by 2012, from about 20 percent.
Still, a Teva-Barr tie-up appears to pose no major U.S. antitrust issues that would scuttle the deal, analysts have said.
Teva would also gain a prominent women's health franchise, including Barr's major portfolio in generic oral contraceptives. Barr also sells the brand-name contraceptive Seasonique, and the Plan B emergency contraceptive.
Buying Barr would also boost Teva's generic franchise in Central and Eastern Europe. Barr jumped into the international market when it acquired Croatia's Pliva in 2006.
Teva would also gain more opportunities for first-to-market generics that can have lucrative exclusivity periods. These Barr opportunities may allow Teva to bridge an expected earnings gap in the next few years, analysts have said.
The total deal value is $7.46 billion plus about $1.5 billion of net debt, the companies said in a joint release.
Under the terms of the agreement, each share of Barr common stock will be converted into $39.90 in cash and 0.6272 Teva ADRs. Teva expects the deal to close in late 2008 and boost earnings after closing.
Teva expects the deal will generate at least $300 million in annual cost savings within three years and provide additional cost savings beyond 2011.
Recent events may be forcing Teva's hand. Teva released study results earlier this month showing a new dosage of its big-selling multiple sclerosis drug Copaxone was not more effective than the current version, endangering Teva's ability to extend the key franchise.
Teva also would be swooping in after Barr reported disappointing quarterly results in May that sent Barr shares to their lowest point in more than three years. The stock had recovered somewhat, but still had been far off the $58 level the shares traded at in November.
Teva is no stranger to acquisitions. It acquired U.S.-based generic drugmaker Ivax for $7.4 billion two years ago. Earlier this year, Teva paid $400 million for CoGenesys and announced a deal to by Bentley Pharmaceuticals for about $350 million.
Lehman Brothers acted as financial adviser to Teva in the latest transaction, while Banc of America Securities advised Barr.