US pharmaceutical giants Pfizer and Warner-Lambert are to merge, ending a three-month takeover battle and creating a company worth $230bn.

In terms of sales and market share, the combined group will be the largest drugs company in the US, and the second-largest in the world.

Only Glaxo SmithKline would be bigger, which itself is the result of a merger agreed just a few weeks ago. The top rival on the US market is Merck.

The stock market value of Pfizer Warner-Lambert, though, is much bigger than that of its rivals, ahead of Merck's $175bn and Glaxo SmithKline's $162bn - if that merger goes ahead.

Pfizer, best-known for its impotency drug Viagra, and Warner-Lambert are the industry's two fastest-growing companies.

Pfizer's chief executive William Steere, said: "By combining two world-class organisations to create the fastest-growing, major pharmaceutical company in the world, we are positioned for global leadership in the discovery of new medicines that will benefit millions of patients around the world."

David Saks, portfolio manager of Gruntal & Co.'s MedScience Fund, described "Pfizer plus Warner-Lambert [as} an awesome combination".

"Inherently, both companies are vibrant and robust. Now, let's just hope they work things out emotionally, in terms of politics", he said.

The two firms announced that they intend to ramp up their spending on research and development to $4.7bn this year.

But there will be cuts, with projected cost savings of $1.6bn by 2002.

The loser of the take-over battle is American Home Products (AHP), which has now been spurned three times by potential merger partners.

At one point AHP and Warner-Lambert were pondering to merge with a third firm, consumer products firm Procter and Gamble, to avoid Pfizer's overtures.

But Wall Street clearly preferred the Pfizer option. To avoid difficulties, Pfizer will pay AHP a $1.8bn break-up fee.

In return AHP will drop its Warner-Lambert stock options.

The new firm will be run by Pfizer's chairman William Steere, will keep the name Pfizer and operate from the firm's New York Headquarters.

Pfizer share holders will own 61% of the combined company, and Warner-Lambert's share holders the remaining 39%.

Under the terms of the proposed deal, Pfizer will pay 2.75 shares of Pfizer stock for every Warner-Lambert share, up from its original offer of 2.5 shares.

This would value Warner-Lambert at $98.31 a share based on Pfizer's closing price on Friday of 35-3/4.