Pfizer and Pharmacia set to create drugs giant

In a surprising blockbuster merger that would create the world's largest drug company, New York-based pharmaceuticals firm Pfizer, which makes the anti-impotence drug Viagra, has reportedly agreed to buy rival Pharmacia Corp for $60bn (£40bn) in stock.

The deal has been approved by the boards from both companies and was expected to be announced today, The New York Times and The Wall Street Journal reported.

The merger would create a company that producing many of the common drugs found in medicine cabinets around the world. Apart from Viagra Pfizer's products include Lipitor (cholesterol) and Zoloft (depression), while Pharmacia's major drug is the arthritis medication Celebrex.

Pharmacia also makes the Rogaine hair products and the Nicorette smoking cessation line. Pfizer's over-the-counter products include everything from Listerine mouthwash and Rolaids anti-acid tablets to Halls cough drops and Visine eye drops.

The new company would have combined annual revenue of $48bn and a research-and-development budget of more than $7bn.

The timing of the deal is surprising considering the overall health of the economy and the many obstacles facing the drug sector. Pharmaceutical companies are experiencing intense competition from generic drugs, pressure on prices from the federal government and a growing number of expiring patents.

Their stock prices have fallen in recent months, along with the rest of the market, as distrust in corporate America grows almost daily amid several high-profile accounting scandals and bankruptcies. The erosion of investor confidence and the downturn in the economy has created a major slump in merger and acquisition activity.

In the first six months of the year, only $200bn in transactions in the US was announced, according to Thomson Financial. At current prices, a Pfizer-Pharmacia merger alone would add up to more than a quarter of that amount.

Under the deal, Pharmacia shareholders would receive 1.4 shares of Pfizer stock for each share in Pharmacia - a 36% premium over the company's Friday closing price of $45.08, the newspapers reported.

The deal still needs approval from regulators and shareholders, but the Times and Journal reported that it is not expected to run into any major snags.

Pharmacia said it would issue a statement on the deal today. Pfizer could not be reached for comment.

Pharmacia, based in Peapack, New Jersey, was created through the merger of Pharmacia of Sweden and Upjohn Co. The company has 59,000 employees in more than 60 countries. Pfizer, based in New York City, employs about 90,000 workers.