Johnson & Johnson today agreed to buy rival Pfizer's consumer healthcare business for $16.6 billion (£9.1bn) in cash.

The move sees America's J&J acquire brands including Listerine, Sudofed and Nicorette to increase its lead in the market for over-the-counter medicines.

The deal follows a three-way fight for the Pfizer unit, which also attracted bids from FTSE 100 rivals GlaxoSmithKline and Reckitt Benckiser.

It comes after a strategic review of the business, which generated profits of $4 billion last year, by Pfizer, which has opted to focus on prescription medicines.

Pfizer, the world’s biggest drugmaker, also said today that it will buy back up to $17 billion in shares - up to $7 billion this year and $10 billion in 2007. It said the stock buyback meant that the sale would not reduce 2007 earnings.

Pfizer expects to book a gain of around $13.5 billion after tax from the sale. The deal is expected to close by the end of this year.

The consumer healthcare market is expected to expand as the global market moves towards self-medication and as emerging-market consumers begin to spend.

It is understood that J&J was keen to make the acquisition after losing out to Boston Scientific Corp in the battle for Guidant Corp, the equipment maker, in January.

However, analysts, who had suggested a price tag of $15 billion would be "full", said that the deal - finally sealed at a level above $16 billion - looked expensive compared with others in the sector.

A price of $16.6 billion equates to nearly 4.3 times last year’s sales of $3.9 billion. Reckitt paid 3.6 times sales for Boots Healthcare International last year.

J&J, whose existing brands include Band-Aid, Tylenol and Neutrogena, was also keen to bolster prospects for growth after Wall Street analysts cast doubt on the strength of its own new-product pipeline.

"We have been noting for some time that J&J would need to rely more heavily on mergers and acquisitions to acquire new avenues of growth as its own internal research and development efforts were not likely to be enough," analysts at Banc of America said.

William Weldon, the J&J chief executive, said: "We see the consumer healthcare markets as increasingly attractive growth opportunities as consumers take greater interest in and responsibility for their own health ... In addition, higher levels of disposable income in developing nations are helping drive increased demand for consumer health products."

J&J expects the deal to boost earnings in 2009 as it moves to cut costs in sales, administration and supply chains.

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