Drug makers Merck ( MRK) and Schering-Plough ( SGP) announced plans Monday to merge in a $41.1 billion stock and cash deal that further consolidates the pharmaceutical industry.

The merger between the two New Jersey-based drug makers comes soon after Pfizer ( PFE) hatched plans to acquire Wyeth ( WYE). Pharmaceutical companies are facing massive revenue and profit shortfalls in coming years as cheaper, generic drugs eat away at some of their most profitable drug franchises.

Merck and Schering-Plough will combine under the Merck banner and will be run by current Merck CEO Richard Clark.

Under the terms of the agreement, Schering-Plough shareholders will receive 0.5767 a Merck share and $10.50 in cash for each share of Schering-Plough. That values Schering-Plough at $23.61 a share, or $41.1 billion, based on Merck's closing price of $22.74 a share on Friday, March 6.

Schering-Plough closed Friday at $17.63, so the deal price represents a 34% premium.

"We are creating a strong, global healthcare leader built for sustainable growth and success," said Clark in a statement. "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. The efficiencies we gain will allow us to invest in strategic opportunities, while creating meaningful value for shareholders."

Merck and Schering-Plough already conduct business together, co-marketing the cholesterol drug Zetia and Vytorin, which combines Zetia with Merck's cholesterol drug Zocor.

Merck anticipates that the transaction will be modestly accretive to non-GAAP per-share earnings in the first full year after it closes and significantly accretive thereafter.

The combined 2008 revenue of the two companies totaled $47 billion. After the merger closes, the combined companies will have about $8 billion in cash and short-term investments.

The transaction will be structured as a "reverse merger" in which Schering-Plough, renamed Merck, will continue as the surviving public company.

Once the transaction closes, Merck shareholders are expected to own about 68% of the combined company, and Schering-Plough shareholders are expected to own about 32%.

Merck Chairman, President and CEO Richard Clark will lead the combined company.

Merck said it's committed to maintaining the annual dividend of $1.52 a share.

Joseph Woelfel contributed to this story.

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