updated 3/13/2006 2:58:01 PM ET 2006-03-13T19:58:01

Watson Pharmaceuticals Inc., which makes generic versions of Valium, Percocet and other drugs, said Monday it reached a deal to acquire rival drug manufacturer Andrx Corp. for about $1.9 billion in cash.

If approved, the deal would create the nation’s third-largest generic drug maker based on prescriptions dispensed, Watson said.

The agreement calls for Corona-based Watson to pay $25 a share for Andrx, a 32 percent premium to the stock’s average trading price over the last 30 days.

Andrx, based in Plantation, Fla., makes generic drugs and drug delivery technologies and employs 1,700 people. The company had revenue of $1.15 billion in fiscal 2004.

“This transaction provides excellent value to our shareholders while also opening new business avenues for Andrx in terms of geography, product offerings, and technologies,” Thomas P. Rice, Andrx’s chief executive, said in a statement.

Watson said it will fund the deal with cash reserves, bank financing and net of cash acquired from Andrx. The acquisition is expected to add to Watson’s 2007 earnings, with estimated revenue next year of $2.8 billion, Watson said.

Analysts surveyed by Thomson Financial expect earnings per share of $1.56.

The boards of both companies have approved the transaction, which is expected to close in six months. Shareholders still need to approve the deal.

If the deal is approved, Watson will have more than 60 generic drug applications in its pipeline.

Watson said the deal will result in the reduction of selling, general and administrative expenses. The company did not say whether it would result in job cuts.

Watson plans to keep Anda, Andrx’s generic distribution business, independently operated and managed.

“Our acquisition of Andrx significantly supports our long-term goal of expanding our existing product portfolio and pipeline, while strengthening Watson’s position in high value, specialized sustained-release technology,” Allen Chao, Watson’s chairman and chief executive, said in a statement.

News of the proposed acquisition prompted New York-based rating agency Standard & Poors to put Watson’s corporate credit rating on its negative “CreditWatch” list.

The agency noted that Andrx’s drug applications remain on hold at the Food and Drug Administration since the agency flagged manufacturing issues during an inspection in September.

Andrx said last fall it was working to resolve the issues, but the timing was uncertain.

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