American Home Products and Warner-Lambert to merge

American Home Products Corp. and Warner-Lambert Co. announced a $71 billion merger that will create the world's largest prescription-drug maker.

American Home Products Corp. and Warner-Lambert Co. announced a $71 billion merger that will create the world's largest prescription-drug maker.

American Home is the company behind Advil, Robitussin and Chapstick and the hormone replacement drug Premarin, the world's most prescribed medicine.

But it is struggling as a result of lawsuits and product safety questions and has been flailing about for a merger partner after two previous deals collapsed.

Warner-Lambert makes Certs mints, Schick razors and the blockbuster cholesterol drug Lipitor. It has been the fastest-growing drug company in the U.S. for the past two years.

The new company will be called AmericanWarner Inc.

"They both need more depth in research and distribution and a stronger global presence," said Linda Miller, portfolio manager for the John Hancock Global Health Sciences Fund, which owns about 150,000 shares of each company.

The stocks of both companies rose Wednesday after both parties confirmed that they were in merger talks. Shares of other drug makers also rose as investors anticipated a new round of dealmaking.

The merger will be structured as a stock swap, with shareholders in each company controlling half of the shares in the new company. Each company will name 10 members of the new board of directors.

Shares of American Home Products jumped almost 11 percent, or by $5.62 1-2, to $56 on the New York Stock Exchange, where Warner-Lambert's stock rose almost 7 percent, or by $5.62 1-2, to $83.81 1-4.

Combined, American Home and Warner-Lambert would have sales of $26 billion. Their prescription-drug business would surpass the current leader Swedish-Anglo concern AstraZeneca PLC, which makes Prilosec, a heartburn drug that had the highest sales of any drug on the market.

Including over-the-counter medicines and other health care products, a combined American Home and Warner-Lambert would rank third in worldwide sales behind No. 1 Merck & Co. and No. 2 Johnson & Johnson.

By joining forces, drug companies can spread the cost of developing new drugs, while increasing the sales force needed to market old and new products. The companies expect a total cost savings of $1.2 billion over three years.