GlaxoSmithKline (GSK) is to merge its consumer healthcare unit with that of rival Pfizer, to create a new business with almost £10bn in annual sales.
The UK pharmaceutical firm – behind many well-known brands including Aquafresh toothpaste, Panadol and Beechams cold and flu remedies – said it would control 68% of the joint venture.
Pfizer – best known for Viagra and Anadin painkillers – would own the rest, though GSK added that the all-equity deal "lays the foundation" for it to spin off the healthcare arm – as shareholders had demanded of the company.
Its stock was 5% up when the FTSE 100 opened.
GSK said it planned to create two separate UK-based companies – one focused on pharmaceuticals and vaccines and the other on consumer healthcare – within three years of completing the tie-up.
GSK said the merger was set to deliver cost savings of £500m by 2022 and admitted there would be job losses under the programme.
Chief executive Emma Walmsley said: "Obviously there's going to be some impact on people.
"That's something we are working through and we will certainly be talking to our employees before we start talking about that in any way publicly."
The tie-up was announced nine months after fellow UK drug firm RB left the race for Pfizer's consumer arm – leaving the door open for GSK.
Ms Walmsley said: "Eighteen months ago, I set out clear priorities and a capital allocation framework for GSK to improve our long-term competitive performance and to strengthen our ability to bring new breakthrough medicines and better healthcare products to people around the world."
She added: "The transaction we have announced today is a unique opportunity to accelerate this work.
"Through the combination of GSK and Pfizer's consumer healthcare businesses we will create substantial further value for shareholders.
"At the same time, incremental cashflows and visibility of the intended separation will help support GSK's future capital planning and further investment in our pharmaceuticals pipeline.
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"With our future intention to separate, the transaction also presents a clear pathway forward for GSK to create a new global pharmaceuticals/vaccines company, with an R&D (research and development) approach focused on science related to the immune system, use of genetics and advanced technologies, and a new world-leading consumer healthcare company.
"Ultimately, our goal is to create two exceptional, UK-based global companies, with appropriate capital structures, that are each well positioned to deliver improving returns to shareholders and significant benefits to patients and consumers."
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