Watson Pharma Strikes First

Updated from 1:50 p.m. EST

Watson Pharmaceuticals (WPI Quote) made a $1.9 billion bid for Andrx (ADRX Quote) Monday, as the generic-drug industry continues to consolidate.

A combination of cutthroat pricing and acquisitions by the biggest members of the group is forcing midsized companies like Watson to get bigger or risk being taken over.

Still, the combination of Watson and Andrx, with estimated revenue of $2.7 billion a year, will be smaller than the industry leaders. Teva Pharmaceutical Industries (TEVA Quote) which recently acquired Ivax for $7.4 billion, and the Sandoz unit of Novartis (NVS Quote), which spent $8.3 billion last year to buy U.S. and German generic-drug companies, are both bigger.

The proposed merger of Watson and Andrx would create the third-largest U.S. generic-drug maker in terms of prescriptions dispensed, the companies said.

Watson executives say the deal should increase earnings per share in 2007. They expect to complete the transaction within six months.

Shares of Andrx gained $2.14, or 9.9%, to close at $23.73 in response to Watson's $25-a-share, all-cash bid. The stock climbed as high as $24.29, setting a 52-week high. Nearly 19.3 million shares were traded. The average daily volume for the last three months is nearly 806,000 shares.

Watson's stock dropped 55 cents, or 1.9%, closing at $29. The stock fell as low as $27.90. Trading volume of 4.5 million shares was five times the daily average.

The combination of Watson and Andrx is a marriage of less-than-stellar performers as far as Wall Street is concerned.

Before Monday, Watson's stock was off about 20% in the last six months. It has six sell ratings and two buy ratings, as well as 15 neutral ratings, according to Thomson First Call. Andrx gets better reviews, with five buy ratings, two sell recommendations and nine hold ratings.