Astra of Sweden and Zeneca of Britain confirmed yesterday they plan to join forces in a $35 billion (£23.5 billion) deal, forging Europe's most valuable merger and creating one of the world's biggest drugs companies.

Astra-Zeneca, with a combined market capitalisation of about $78 billion at yesterday's close, would have had pro forma pharmaceutical sales of $11.5 billion last year.

The new group would realise annual cost savings of $1.1 billion within three years. Six thousand jobs would go, mainly in administration.

It would have its corporate headquarters in London and its main research and development centre in Sweden. Mr Tom McKillop, head of pharmaceuticals at Zeneca, was named as chief executive, Mr Percy Barnevik, the Swedish industrialist, as chairman, with Sir David Barnes from Zeneca and Mr Hakan Mogren from Astra as deputy chairmen.

On completion of the merger, Zeneca's shareholders will have 53.5 per cent of the new company and those of Astra 46.5 per cent. The deal was described by both parties as a "merger of equals".

There was speculation yesterday that a counter-bidder might emerge for either company. But Mr Barnevik said: "I am convinced that of all the alternatives (for Astra and Zeneca) . . . these are the absolute best partners."

He said the priority was speedy completion of the integration. "We must execute the merger fast, reap the benefits fast and build the Astra-Zeneca brand name fast," he said.

Mr McKillop said the deal would give Zeneca and Astra the critical mass to compete at the top in the global industry. He said it would make the combined company "a partner of choice" for any competitor wanting to establish a strong presence in Europe.

Astra's biggest drug is the anti-ulcer Losec, the world's biggest-selling prescription drug. Until a June agreement to discontinue Astra's partnership with Merck, US rights to Losec were jointly owned by the American company.

The deal will trigger an immediate payment to Merck of $1.7 billion.

Clariant and Ciba Speciality Chemicals said they had broken off merger talks after a due diligence review turned up a series of major risks that would have undermined the deal. In separate but identical statements announcing the shock news, the rivals said they regretted having to cancel the deal unveiled a month ago that aimed to create the world's biggest speciality chemicals group.