Barr Pharmaceuticals (BRL) is planning to pay $2.2 billion for Croatian generic-drug maker Pliva, an acquisition that will enable it to significantly expand into European markets.

"We've been almost exclusively a U.S.

market company," said Bruce Downey, chairman and CEO of Barr, in a conference call with analysts and investors. Buying Pliva "will accelerate the growth of Barr," giving it access to more than 30 markets as well as an extra $600 million in annual sales. The combined company would have sales of $2.5 billion.

By midmorning, Barr's stock was off 74 cents, or 1.5%, to $48.03.

Barr won a bidding contest among several companies, the most visible being Iceland's

Actavis Group

, which had been courting Pliva since mid-2005. The Actavis bid of $1.6 billion was deemed too low by Pliva's management.

The international cast of characters underscores how the generic drug industry is both expanding across borders and consolidating. Actavis has made a few acquisitions in the U.S. One of the most aggressive U.S. companies in international markets was Miami-based Ivax before it was acquired by Israel's

Teva Pharmaceutial Industries

(TEVA) - Get Report

, the world's largest maker of generics.

Teva and the Sandoz unit of Switzerland's

Novartis

(NVS) - Get Report

have been trading places as the world's biggest generic-drug company thanks to acquisitions. Also in the U.S.,

Watson Pharmaceuticals

(WPI)

is in the process of buying

Andrx

(ADRX)

, whose shareholders are scheduled to vote on the deal Wednesday.

For Barr, the best-case scenario could lead to a closing in October for Pliva, an 85-year old company based in Zagreb, Croatia, which also has two subsidiaries in the U.S. The agreement must be approved by the Federal Trade Commission, along with regulators in Croatia and Germany.

Downey said Barr likes Pliva for more reasons that access to foreign markets. Pliva's facilities for different drug-delivery technologies, including creams and ointments, as well as its manufacturing capabilities for creating generic versions of biotechnology drugs, were key selling points, Downey said.

"This combination will redefine Barr's potential for success by significantly lowering the cost structure that Barr faces as a stand-alone, U.S.-based company," Downey said. "Unlike one-time cost synergies, these capabilities and more favorable cost structure will produce synergies that will increase in successive years."

Downey said he expects to the transaction to have no effect or a slightly positive effect on Barr's earnings per share for the fiscal year ending June 30. The acquisition will raise its EPS in fiscal 2008. Those predictions exclude charges related to the deal, amortization of intangible assets associated with the aqcuisition and cost savings.

One matter hanging over the deal is manufacturing problems cited by the Food and Drug Administration at a Pliva plant in Zagreb. Last month, Pliva received a warning letter from the FDA after the agency inspected the plant. At the time, Pliva said its management "is addressing this issue very seriously and is in the process of implementing a corrective action plan."

Pliva said the supply of products to the U.S. will continue. However, the FDA won't approve any new Pliva drug applications until the problems are corrected. "Management does not currently expect this to have any material impact on the company's financial outlook for 2006," Pliva said last month.

Downey said "we're convinced Pliva is on the right track" toward addressing the problems cited by the FDA.