Empowered by the Great Recession, urged on by powerful retailers, generics and store brands are taking turf from branded goods on multiple fronts, from pharmaceuticals to household products to food and otc health. Certain niches, however, have seemed better defended than others. For example, could a generic competitor ever take a serious piece of the high-margin market for infant formula?

Perrigo Co. (NASDAQ:PRGO), which on Tuesday unveiled an $808 million cash deal for PBM Holdings Inc., the largest generic formula maker, says yes. And as the dominant supplier of generic otc health products, many of them on sale at Wal-Mart under the Equate brand, its view is a well-informed one.

As described by CEO Joseph Pappa in an analyst call, there's plenty to like about the deal, including a tax angle that Perrigo says will enable it to add about $300 million of sales in its next fiscal year for an implied transaction cost of $658 million. Investors agreed, driving shares of Perrigo -- already a red-hot stock -- up nearly 12% by the end of the day.

It makes sense to buy rather than build, since regulatory requirements make getting an infant formula plant up and running a major task. PBM's plant in Virginia, purchased from Wyeth 13 years ago by CEO Paul Manning (who will continue to run the operation) is one of only four in the country, with the others owned by the big branded providers: Nestle SA, Abbott Laboratories (NYSE:ABT) and Mead-Johnson Nutrition Co. (NYSE:MJN).

Those three, and especially Mead Johnson, will be watching Perrigo closely.

Pappa says store brands currently have only a 10% share of the U.S. formula market, and he thinks Perrigo and PBM can double that in the next four to five years. Retailers will be powerful allies in the effort. PBM already sells through Wal-Mart Stores Inc.'s (NYSE:WMT) Sam's Club. And as Donald Riker. a consumer healthcare consultant with On Point Advisors LLC observes, it's unlikely Perrigo would have made this move without a nod from Wal-Mart.

An even bigger prize is the $23 billion global market, and the chance to sell PBM products through Perrigo's channels in China and elsewhere.

Overseas sales are one of the two things that investors such as Paulson & Co. like best about Mead Johnson, spun out of Bristol-Myers Squibb Co. (NYSE:BMY) last year. The other is that it's considered an acquisition candidate for the likes of Danone Group SA or H.J. Heinz Co. (NYSE:HNZ). The prospect of stepped-up generic competition at home and abroad could make it more attractive for Mead to be part of a larger company. It's not going to make suitors want to raise their bids, though.