The directors of Procter & Gamble Co. gave approval to the company to pursue an acquisition of drugmakers Warner-Lambert Co. and American Home Products Corp.
An announcement is expected as early Monday, formal negotiations are likely to begin soon and a transaction could be unveiled in one to two weeks, said a person familiar with the decision by the board of directors.
P&G, the top manufacturer of household goods, is interested in a stock swap for the two companies, a transaction that would make P&G one of the world's largest drug companies.
Warner-Lambert and American Home asked P&G to consider a combination, sources said. Rival drugmaker Pfizer Inc. has offered to raise its unsolicited $75 billion bid for Warner-Lambert, which already had agreed to merge with American Home. Officials at the companies declined to comment.
P&G's stock has fallen in value for three consecutive days since merger discussions were reported, erasing about $19 billion in market value for the maker of Tide detergent and Crest toothpaste.
"People are worried about a bidding war," said Stuart Friou, an analyst with James M. Myers & Co., which owns P&G shares. "A three-way deal would be unprecedented in size."
Chief executive Durk Jager is breaking with tradition at P&G, which has shunned big purchases during its 163-year history, because sales have stalled amid competition and slow growth in its mainstay products. The drug industry is growing at a faster pace, fueled by new technologies and an aging U.S. population, and offers bigger margins.
A purchase of either drug company would be the biggest by far for P&G. The company's costliest acquisition was last year's addition of pet-food maker Iams Co. for $2.3 billion.
P&G wants to expand its pharmaceutical business, which sells about $600 million a year in prescription drugs to treat such ailments as heart disease and infections. P&G's drug sales revenue is dwarfed by leading drug manufacturers, such as Merck & Co., with annual sales of $15 billion.
Warner-Lambert originally agreed to a friendly merger with American Home, only to find itself the target of a hostile bid by Pfizer. On Jan. 13 Warner-Lambert said it would hold merger talks with Pfizer after deciding that Pfizer's stock offer of $92.18 a share is better financially than the $63.59 value of the American Home agreement.
A bidding war for Warner-Lambert, however, could result in a decline of more than 10 percent in P&G's per-share earnings because of the stock that the company would likely issue to pay for a purchase, analysts said.