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.

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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