The two firms said they had agreed an all-share merger of equals to form Astra Zeneca, a company with a market capitalisation of $67 billion. Zeneca shareholders will hold 53.5 per cent and Astra shareholders 46.5 per cent.

Under the deal, Zeneca is to bid for all Astra shares with Astra shareholders receiving 0.5045 shares in the new concern Astra Zeneca for each Astra A-series or B-series share. Tom McKillop, head of Zeneca's pharmaceuticals business and the man nominated to head Astra Zeneca, said the merger was a "perfect fit".

"We believe that having known each other for many years and having worked together for weeks and indeed months that this will be a winning combination," he told reporters in a telephone conference call.

The driving force behind the merger was the tremendous step-up in globalsales and marketing power and reach that would be achieved, he said. Astra Zeneca will be Number 3 in the world in prescription drug sales, holding the Number 2 slot in Europe and ranking seventh in the US market.

The two companies said in a joint statement that yearly pre-tax cost savings would be $1.1 billion within three years and that restructuring would involve the loss of some 6,000 jobs worldwide out of a combined current workforce of around 55,000.

Swedish industry magnate Percy Barnevik has been nominated chairman, McKillop Chief executive and Zeneca's Sir David Barnes and Astra's Hakan Mogren deputy chairmen in the new group. AstraZeneca would have had pro forma 1997 pharmaceutical sales of $11.5 billion, total sales of $15.9 billion and pre-tax profit of $3.5 billion. Combined research and development investment is more than $1.9 billion.

Shares in both companies leaped on the news with Zeneca gaining 1.75 pounds, or 6.9 percent, to 26.95 pounds by 0940 GMT and Astra A shares up 21.5 crownsat 172.5. The merger, linking the makers of two of the world's best known drugs in Astra's blockbuster ulcer pill Losec and Zeneca's cancer treatment tamoxifen, ends years of speculation about the future of the two groups, which have so far hung back from the tide of consolidation sweeping the drugs industry.

The announcement follows hard on the disclosure that Hoechst and Rhone Poulenc are to merge, and last week's news of an all-French merger between Sanofi and Synthelabo.

"This merger makes perfect sense because Astra and Zeneca are of comparable size, are strongly research driven and need critical mass," said Hemant Shah, a US pharmaceuticals analyst.

Merger not to affect Indian operations

MUMBAI: British and Swedish drug groups Zeneca Group Plc and Astra AB's announcement to join forces in Europe's largest-ever merger is unlikely to have major ramifications in India. This, analysts say, is essentially because of Astra's intent to exit from the Bangalore-based pharmaceutical company AstraIDL. Astra IDL is jointly controlled by the Swiss multinational and the IDL group of the Hindujas. Both partners hold 25.75 each of the company's equity and IDL, which has the first right of refusal, is believed to have evinced an interest in taking total control of the company.

Astra had, earlier this year, in a communication to the Securities and Exchange Board of India, disclosed its intent to withdraw from Astra IDL in a phased manner. The Swiss firm also plans to reassign its trademarks. Astra, however, has a wholly-owned research facility at Bangalore.

The firm's products are essentially concentrated in the cardiovascular, anaesthetics and respiratory segments and key brands include Pulmicort, Bicanyl and Imdur. The company's facility at Yelahanka is backed by 15 sales outlets all over the country.

Zeneca, on the other hand, has a strong presence in the country's agrochemicals segment. The British multinational operates mainly through its subsidiary Zeneca Agrochemicals, a seeds firm Advanta,specialty chemicals unit, Stahl India, and a joint venture with ITC Agrotech. Key Zeneca brands in the agrochem segment include gramaxone, cymbush and simper.