* To pay $1.18 bln in cash, issue 40 million new shares
* Deal will make Hikma sixth biggest U.S. generics provider
* Targeting 2017 revenue of $725 mln-$775 mln from units
* Shares surge in London (Adds Hikma CEO, analyst comments)
By Aastha Agnihotri and Roshni Menon
July 28 (Reuters) - Hikma Pharmaceuticals is buyingBoehringer Ingelheim's U.S. generic drugs business for about$2.65 billion in cash and stock, the latest in a string of dealsin a sector where size can lend a competitive edge.
The Jordanian company, which makes and markets branded andnon-branded generic and injectable drugs, said the Boehringerpurchase would make it the sixth biggest provider of genericdrugs in the United States.
The deal was announced a day after Israel's TevaPharmaceutical Industries agreed to pay $40.5 billionfor Allergan's generic drug business, consolidatingTeva's rank as the world's No. 1 generics maker.
The generic drugs sector is highly competitive so economiesof scale are important for pharmaceutical companies.
Hikma has been looking to expand in the United States, whichaccounts for about half of sales. It strengthened its injectabledrugs business there when it bought manufacturing assets fromGermany's Boehringer last year.
However, Hikma has been particularly keen to boost its shareof the non-injected medicine market in the United States.
"We won't be the size of Teva and other big companies, butwe will be bigger than many other companies that were ahead ofus over the last five years," Hikma Chief Executive SaidDarwazah told Reuters.
Shares in the London-listed company rose as much as 8percent to 2,253 pence on Tuesday, making them one of the topgainers on the FTSE-100 index. The stock has lost about13 percent since its inclusion in the index in March.
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Besides Teva, other generic drug sector deals this yearinclude Pfizer Inc's $15 billion deal for Hospira Inc inFebruary, Endo International's $8 billion purchase ofPar Pharmaceutical in May and Mylan NV's proposed offerfor Perrigo Company.
India's Lupin also agreed to buy U.S. peer GAVISPharmaceuticals for $880 million this month.
The generics division is Hikma's smallest, bringing in $215million in 2014, or 15 percent of sales. However, Hikma is nowtargeting sales of $725 million to $775 million from theBoehringer businesses in 2017.
Hikma said it will pay $1.18 billion in cash and issue 40million Hikma shares, or about 16.71 percent of its issued sharecapital, for Boehringer's Roxane Laboratories Inc and BoehringerIngelheim Roxane Inc when the deal closes.
"The price looks reasonable to us given recent dealvaluations in the sector and assuming Hikma can deliver on theseobjectives," Jefferies analysts wrote in a note to clients.
Hikma said the valuation was based on an agreed issue pricefor the new Hikma shares of 23.50 pounds and an exchange rate of1.56 dollars to the pound. It also agreed to make milestonepayments of up to $125 million as part of the deal, which isexpected to close in the fourth quarter this year.
Hikma said it expected the acquisition to increase adjustedearnings per share in 2016 and to add "very strongly" toadjusted EPS thereafter.
Darwazah ruled out any more big acquisitions, saying thecompany would focus instead on adding products and technology.
"We are not in the race to be number three at the moment,"Darwazah said. ($1 = 0.6424 pounds) (Editing by David Clarke)