Teva Pharmaceutical Industries Ltd is looking to buy more shares in Mylan NV, positioning itself for a possible legal challenge to the generics drugmaker that has spurned its takeover bid, people familiar with the matter said.

The strategy is a sign of Teva's commitment to its $40 billion (£26 billion) bid for Mylan, as the latter presses on with its own $34 billion hostile bid for over-the-counter drug company Perrigo Company Plc.

Teva last week disclosed a 1.8 percent stake in Mylan, which blasted the move as breaching U.S. antitrust laws because of the stake's size. U.S antitrust laws bar companies from acquiring stakes worth more than $76.3 million in rivals without first obtaining regulatory approval. Teva's stake in Mylan far exceeds that threshold.

The dispute boils down to where Mylan, which is incorporated in the Netherlands, has its "principal" offices. Mylan argues these are located within the United States for the purposes of the U.S. Federal Trade Commission, thereby affording it antitrust protection, even as it lists its principal executives offices in Britain in filings with the U.S. Securities and Exchange Commission.

Despite this issue, Teva may increase its stake in Mylan to around 4.6 percent, the people said. Such a stake would allow Teva to have standing in Dutch court to potentially challenge Mylan, which has so far refused to engage with its Israeli rival, the people added.

Teva may seek to reach this ownership threshold ahead of Mylan's record date, or the date in which a shareholder must officially own shares to be entitled to vote on the tender offer for Perrigo, they said. This would raise pressure on Mylan's management ahead of the vote, the people added.

A tender offer for Mylan is likely to come after Teva raises its stake, the people said.

The sources asked not to be identified because Teva's deliberations are not public. Representatives for Teva and Mylan declined to comment.

Mylan, which makes the EpiPen product for severe allergies, can take advantage of Dutch provisions that would make a hostile takeover difficult because of its incorporation in the Netherlands.

Hedge fund Paulson & Co LP in April raised its stake in Mylan to around 4.6 percent, including derivatives, to put pressure on Mylan management to pursue a tie-up with Teva. The hedge fund has been privately encouraging Mylan's board to consider Teva's takeover proposal, people previously told Reuters.