Updated from 11:46 a.m. EST

Mylan Laboratories ( MYL) on Wednesday finally raised doubts about continuing to pursue its proposed acquisition of King Pharmaceuticals ( KG) -- at least under the original terms of the deal.

The news sent Mylan's shares up 40 cents, or 2.3%, to $17.57, while King's stock lost 83 cents, or 6.9%, to $11.16

Citing King's recent restatement of earnings for 2002, 2003 and the first half of 2004, as well as King's possible restatement for other periods, Mylan said it doubted the deal could be completed by Feb. 28, the deadline in the original merger agreement, which the companies announced on July 26.

A restatement of earnings by King, which the company revealed last month , is a technical violation of the merger agreement, giving Mylan the option to cancel the deal or continue pursuing it. In the past, Mylan said it would pursue the deal.

"While we are monitoring and reviewing these accounting issues and a number of other matters concerning King, in light of timing issues, we believe that it is highly unlikely that the parties would be able to consummate the merger contemplated by our merger agreement with King by Feb. 28," said Robert J. Coury, Mylan's vice chairman and chief executive.

"Also, in light of our ongoing review, we believe that it is unlikely that Mylan will consummate the acquisition of King on the terms, including the economic terms, set forth in the existing merger agreement," Coury said. Mylan offered to pay 0.9 shares of Mylan stock for each share of King's stock. At the time of its announcement, the deal was worth $4 billion.

"While our continued study may lead to a renegotiation of the existing merger agreement, there can be no assurance that a revised agreement will be reached or that any transaction will occur," Coury added. "Until a resolution is reached, Mylan intends to have no further comment on this situation." King offered no immediate comment.

The deal got a cool reception on Wall Street, and it provoked strong opposition from investor Carl C. Icahn, who began to buy Mylan's stock on the day the deal was announced and who is now Mylan's second-largest shareholder with 9.78% of the shares.

On Wednesday, Icahn reaffirmed his opposition to the King deal under any circumstances and reiterated his proposal to buy all of the Mylan shares he doesn't own for $20 a share.

"Today's announcement does raise the specter of a new transaction with King," Icahn said in a letter the Milan Puskar, the chairman of Mylan. " We advise you once again that we do not think King is a good acquisition candidate for Mylan on any terms and that in no event should Mylan seek to engage in a revised agreement that would attempt to avoid the vote of Mylan shareholders."

Wall Street analysts said the latest news confirmed their concerns about the deal. "We maintain our belief that the Mylan/King transaction does not make strategic or financial sense," said David W. Maris, of Banc of America Securities, in a research note to clients Wednesday. "We have long suspected that the deal would only go through with a renegotiated lower purchase price."

Maris has neutral ratings on both King and Mylan, adding that both companies "are facing significant fundamental changes." King is clearly in worse shape than Mylan. "We wonder what the stability of the King business is right now," he added. (Maris doesn't own shares. His firm has had an investment banking relationship with King in the last 12 months and expects to seek or receive investment banking related compensation from Mylan in the next three months.)

"Mylan's deteriorating fundamentals and lack of visible near-term growth drivers are our primary concerns," said Michael Tong of Wachovia Securities in a research note Wednesday. He reaffirmed his market perform rating on Mylan. (He doesn't own shares; his firm says it expects to seek or receive investment banking compensation from Mylan in the next three months.)