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Shares of Irvine, Calif.-based Sicor (SCRI: news, chart, profile) jumped $1.74, or 7 percent, to $26.77. Earlier, the stock hit $26.94, its highest level since July 2001.

U.S.-listed shares of Israel-based Teva (TEVA: news, chart, profile) fell $1.04 to $56.67.

Under terms of the deal, each share of Sicor would be exchanged for $16.50 in cash and 0.1906 of a Teva U.S.-listed share. Based on Teva's Thursday closing price of $57.71, the buyout price would be $27.50, a 10 percent premium to Sicor's closing price Thursday of $24.97. Shares had run up in recent weeks on reports that Teva, the world's No. 1 generic drugmaker, was planning to make an offer.

The deal still requires regulatory approvals and the approval of Sicor shareholders. The companies said in their announcement that two major shareholders, Rakepoll Finance N.V. and Carlo Salvi, which together hold about 19 percent of Sicor shares, have agreed to back the deal.

The buyout is expected to close in the first quarter and is expected to add to Teva's earnings "within the first year," Teva said.

Sicor shareholders would end up with about 7 percent of Teva in exchange for their shares.

"The Sicor transaction significantly supports our long-term strategy of profitable growth and global leadership," Israel Makov, Teva's CEO and president, said in a statement.

Already a leader in the business of generic drugs in the pill form, the Sicor acquisition would expand Teva's business into the field of injectable generic drugs.

Analyst Timothy Coan at US Bancorp Piper Jaffray said the acquisition appears to be a wise, long-term move for Teva that would broaden its product offerings.

But he said there would likely be little in the way of quick cost-cutting benefits, a hallmark of most merger deals, because there's little overlap in the two companies' businesses.

"This deal is clearly more strategic-fit than short-term expense driven for Teva, making the asset more of a long-term focus for the future direction of the company than past acquisitions," Coan wrote.

The use of generic drugs, which are typically substantially cheaper than their branded counterparts, is on the rise as government agencies and health insurance plans struggle to find ways to hold down the cost of prescription drugs.

Sicor is also working in the field of potential generic versions of biotech drugs. The biotech industry has been insulated from generic competition because of regulations governing the approval of biotech generics. But there is a growing sentiment that the U.S. Food and Drug Administration should make it less cumbersome for generic biotech drugs to be approved. If that were to happen, a lucrative new market would open up to generic drugmakers.