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German pharmaceutical firm Merck has agreed to sell its generic business unit to rival firm Mylan in a deal worth billions of euros.

Pennsylvania-based Mylan announced it will acquire the unit for €4.9 billion (£3.34 billion) in an all-cash transaction as the demand for cheaper, generic alternatives to popular drugs increases across the world.

The combined company is expected to have revenues of around $4.2 billion (£2.11 billion) and more than 10,000 employees.

However the merger is not expected to endanger the job security of Merck's generic drugs staff. Hank Klakurka, the current president and chief executive of Merck generics, will retain his role while long-term employment agreements have been arranged with members of Merck generics' senior management team.

"Mylan's acquisition of Merck generics would substantially complete the execution on one of its long-term visions: to create a world class global quality generics leader," said Robert Coury, Mylan's vice chairman and chief executive.

Describing the merger between the two firms as "truly outstanding", Mr Coury stressed the important geographical span enabled by the acquisition.

"Merck generics provides us with leading positions in many of the world's other key regions. Together, we will form a powerful, diverse, robust and vertically integrated generics platform," he added.

Merck generics has sales in more than 90 countries and is the world's number third biggest generics business by revenues in 2006.