In a season of epic pharmaceutical mergers, drug major Merck & Co. is acquuiring Schering-Plough Corp. for $41.1 billion in cash and stock, giving it full rights to cholesterol pills Zetia and Vytorin and experimental treatments for blood clots, asthma and schizophrenia.

The deal comes less than two months after Pfizer Inc., the world's biggest drugmaker, agreed to buy Wyeth for about $62 billion. It may intensify pressure on other drugmakers, including Bristol-Myers Squibb Co, to broaden their product lines and combine their research efforts as big selling products lose patent protection. (See: Pfizer-Wyeth create $68-billion blockbuster deal)

The deal would make Merck the second-biggest US drugmaker after Merck. Schering-Plough holders will get $23.61 a share, a 34-per cent premium to the closing stock price last week, the companies said in a statement.

Merck had been looking to diversify for quite some time now, even as its ''blockbuster'' patents approach expiry deadlines and generic drug rivals nibble away at its profits. Schering-Plough was also vulnerable to consolidation because of its relatively high credit default spreads, making it tricky for the company to raise financing. So, the coming together of these two names was not entirely unexpected.

In fact, it may just be another in a long line of consolidation in the industry. Although so far the drug deal fervour has stayed within the US, that could change soon. Analysts opine that even though there was more pressure on American pharmaceutical icons to merge because of their comparatively high reliance on blockbuster-drug revenues, the wave of consolidation would eventually hit Europe.

Schering-Plough shareholders will receive 0.5767 Merck shares and $10.50 in cash for each share of Schering-Plough. Shares of Kenilworth, New Jersey-based Schering-Plough rose the most in a month in New York trading on 6 March as investors speculated on a possible bid.

Merck will finance the cash component of the deal with a combination of $9.8 billion of existing cash reserves and $8.5 billion from committed financing to be provided by JP Morgan. The companies said they expect to close the deal in the fourth quarter.

After closing, Merck shareholders are expected to own about 68 per cent of the combined company, and Schering-Plough shareholders are expected to own approximately 32 per cent. Merck anticipates that the transaction will ''modestly'' add to earnings in the first full year following completion and ''significantly'' thereafter.

Once the deal is closed the board of the combined company will comprise the Merck board plus three Schering Plough representatives. The combined company will be called Merck and led by Merck CEO Richard Clark. Fred Hassan, the CEO of Schering-Plough, intends to participate in the integration until the close, the companies said.

"The combined company will benefit from a formidable research and development pipeline, a significantly broader portfolio of medicines and an expanded presence in key international markets, particularly in high-growth emerging markets," Clark said in a statement.

He added that Schering-Plough's "considerable biologics expertise" would complement Merck's novel proprietary biologics presence to create the best pipeline in the industry. The tie-up will double the number of potential drugs Merck has in Phase III development to 18.

In better economic times, a big acquisition tends to galvanize the stock market. But investors hoping for signs the economy may turn around sooner rather than later have found little lately to give them any optimism.  Analysts have forecast increased consolidation in the pharmaceutical industry for some time, as companies struggle with slumping sales and fierce competition.

So today's announcement by Merck does not come as much of a surprise. That could be part of the reason why there wasn't much spillover in the broader market

Merck's financial adviser was J.P. Morgan and legal adviser was Fried, Frank, Harris, Shriver & Jacobson. Schering-Plough's financial adviser was Goldman, Sachs & Co. and Morgan Stanley. Legal adviser was Wachtell, Lipton, Rosen & Katz.