The European Union has approved Merck & Co.'s proposed takeover of Schering-Plough, which would create the second-biggest global producer of prescription medicines.

The EU's antitrust authorities said in a statement on Friday the "transaction would not significantly impede effective competition" in Europe.

The $US41.1 billion ($A44.28 billion) acquisition of the smaller Schering-Plough Corporation will allow Merck to leapfrog to No. 2 worldwide in prescription medicine, just behind Pfizer Inc, which last week bought Wyeth for $US68 billion ($A73.3 billion). The new Merck-Schering company would have about $US42.4 billion ($A45.7 billion) in annual sales.

"Approval from the European Commission marks a key milestone for the completion of our transaction with Schering-Plough," Merck president and chief executive Richard T Clark said in a statement.

The two companies hope to close the deal in the fourth quarter after shareholders approved it on August 7. The deal still needs approval from the US. Federal Trade Commission.

The EU said the overlap would not pose significant problems in Europe even though both companies have operations in prescription pharmaceuticals.

Merck is a research-driven company that also makes vaccines, while Schering is a health care group also centering on prescription pharmaceuticals as well as over-the-counter and animal health products.

In its checks for overlaps in Europe, specifically in the areas of asthma and allergic rhinitis, the EU Commission found the products were not close competitors and the tie-up would not prevent enough other companies from competing.

In the animal health market, concerns were assuaged when Merck sold its half share in the joint venture Merial to rival Sanofi-Aventis.

Merck and Schering-Plough have been partners for several years on the cholesterol drugs Vytorin and Zetia, but their once-surging sales have been declining steadily since January last year.

That partnership between the New Jersey neighbours helped set up the deal. Merck really needed Schering-Plough's much stronger stable experimental drugs in development. Buying Schering-Plough gives it a strong biotech operation, more veterinary medicines and a host of well-known consumer health products such as the Coppertone sun care and Dr Scholl's foot care lines.

AP