Mitsubishi Chemical will be the surviving company. Before the merger, Tokyo Tanabe, a Tokyo-based medium-sized drug maker, will form a wholly owned subsidiary on April 1. All business of Tokyo Tanabe will be sold to the new company and Mitsubashi Chemical will sell its drug business of Tokyo Tanabe's new company on September 30. On October 1, the new company wall become a wholly-owned subsidiary of Mitsubishi Chemical.

Mitsubashi Chemical currently holds a 20.39 per cent stake in Tokyo Tanabe.The companies said they expect the new company's current profit to rise to nine billion yen in the year to March 2002 from an estimated current profit of six billion yen in 2000/01.

They cited as reasons improved research, development, production and sales expected through the consolidation.

Sales are forecast at 90billion yen in 2000/01 and 95billion yen in 2001/02, they said.

They expected little impact from the merger on Mitsubishi Chemical's earnings because dividend income from the new drug company will offset a drop in profit at Mitsubishi Chemical.

Already the planned merger has caused competitors to reassess the business environment.

Mitsui Chemicals Chairman Shigenori Koda told a news conference on Thursday that his company faced several options, including possibly selling off its pharmaceuticals division. Koda said a decision would be made by the end of the year.