High Street retailer Boots has said it is to merge with rival Alliance UniChem in a deal worth £7bn ($12bn).
Boots has faced stiff competition from supermarket rivals
The merger will create one of Europe's largest drugs, beauty and healthcare groups with sales of more than £13bn.
But about 1,000 jobs will go at the new firm - to be called Alliance Boots - which will have 2,600 stores in the UK.
Although an established household name in the UK, Boots has been struggling in the face of stiff competition from supermarket giants Tesco and Asda.
Boots, which began trading in 1849, has seen its sales fall in recent years as supermarkets have aggressively targeted the toiletries and over-the-counter medicines markets.
The shares of both companies rose strongly on news of the tie-up.
£110m savings target
The proposed merger will eventually lead to annual pre-tax cost savings of about £100m, Boots and Alliance UniChem said in a joint statement.
The boards of both companies said they would unanimously recommend the deal to their shareholders.
"We see around 1,000 [job losses] emanating from this particular transaction," said Boots' chairman Sir Nigel Rudd, adding that this was "not a significant number" considering the combined group's 100,000 staff.
There have been suggestions that Boot's headquarters in Notthingham might close, with the joint company run from Alliance UniChem's base in Chessington at the outskirts of London.
Although described as a merger of equals, Boots' chief executive Richard Baker will take on the same role at the combined group, while Sir Nigel will maintain his position as chairman at the new company.
Boots shareholders will hold 50.2% of the shares in the combined group.
"I believe that this merger does an awful lot for customers, for shareholders, and for indeed the employees," Sir Nigel told BBC Breakfast.
Retail union Usdaw said it was seeking urgent talks with both Boots and Alliance UniChem.
"We are seeking meetings with both companies this week to find out exactly what the long term implications are for our members," said Usdaw general secretary John Hannett.
The stock markets appeared to approve the deal, with Boots shares gaining just over 4% or 24.5 pence to close at 633p, and Alliance UniChem rising nearly 1% to end the day with a 8.5p gain at 875p.
A tie-up will give the Boots brand greater profile in continental Europe as well as creating a major global force in the distribution of pharmaceutical and healthcare products.
Alliance UniChem's executive deputy chairman, Stefano Pessina, said the deal would "enhance our offering to the independent chemist".
But the deal is likely to be scrutinised by the UK competition authorities, which may require the merged company to sell some stores.
On Sunday, the Observer reported that a merger could result in thousands of jobs losses as the two companies tried to make savings in areas such as administration and distribution.
History: Established in 1997
Stores: 1,200 pharmacies
Sales: £8.8bn (2004-5)
Profits: £248m (2004-5)
Investors have become increasingly dissatisfied with Boots' performance over the past 18 months, during which it has issued three profits warnings.
Its profits fell 11% last year and it recently warned of "difficult" trading for the rest of the current year.
Boots' efforts to broaden its retail offering over the last ten years - offering dentistry, chiropody and laser eye surgery - have proved largely unsuccessful.
Alliance UniChem has grown steadily through acquisition to become the third largest pharmacy chain in Europe.
Boots currently owns 1,400 pharmacies in the UK and has a stock market value of £4.4bn.
Alliance UniChem operates 1,200 pharmacies in the UK, Norway, Italy, Switzerland and the Netherlands and has a market value of £3.15bn.
The combined group's wholesale and distribution network will serve over 88,000 outlets.