By Neetha Mahadevan 

FRANKFURT--German pharmaceutical company Merck KGaA on Monday said it would acquire U.S. firm Sigma-Aldrich Corp. for $17 billion, as it bids to strengthen its position in the life science industry.

Merck will acquire all of Sigma-Aldrich for $140 a share in cash, a 37% premium to Sigma's closing share price on Friday. The acquisition, the largest in Merck's history, represents "a quantum leap" for its life sciences business and increases its presence in North America and Asia, Chief Executive Karl-Ludwig Kley said.

Shares of Merck rose as investors bet the move would make the company one of the leading players in the $130 billion global life science industry.

"This looks like a very strategic deal and, at first glance, it makes a lot of sense--even if the size of the deal is surprising," Warburg analyst Ulrich Huwald said, adding that the companies have complementary segments and the deal will increase Merck's value.

St. Louis-based Sigma-Aldrich specializes in products used in scientific research and development in fields from biotechnology to pharmaceuticals. It also manufactures high-technology materials for smartphones and TV screens.

The acquisition bolsters Merck-Millipore's business, and will help increase its scale, presence and offering in the U.S. as well as bulking up in other locations, Barclays analyst Michael Leuchten said.

"The strategic fit is strong," Mr. Leuchten said.

Sigma also supplies chemicals and services to major pharmaceutical companies like Pfizer and Novartis, and academic institutions.

"By merging, we are securing for us stable growth and profitability in our life science business and benefiting from trends like increasing globalization of research and pharmaceutical production," Mr. Kley said.

Monday's deal is the latest in a string of transactions in the pharmaceutical industry, which has seen a surge in M&A activity this year. AbbVie Inc. agreed to pay $54 billion for Shire PLC, while GlaxoSmithKline PLC and Novartis AG agreed to swap some businesses in a deal worth more than $20 billion.

Pharmaceutical companies have been increasingly shedding noncore activities to strengthen core businesses, leading to shopping trips on both sides of the Atlantic.

"The U.S. has many attractive targets and the prices that are being paid are rather high, but German companies wouldn't mind paying that if the target fits their strategy," Ernst & Young's sector leader for life sciences and chemicals transactions, Stefan Rösch-Rütschje, said. He cited the timing of Bayer AG's acquisition of Merck & Co.'s consumer-product business for $14.2 billion earlier this year.

Bayer later went on to shed its noncore plastics business to focus on life science. Merck KGaA isn't affiliated with Merck & Co. of the U.S.

The Sigma-Aldrich purchase is expected to immediately boost Merck's adjusted earnings per share and operating profit margin. Merck expects annual synergies of about EUR260 million ($334 million), which should be fully achieved within three years after closing. It also expects integration costs of about EUR400 million spread over 2015 to 2018.

Merck's divisions include its biopharmaceuticals division, Merck Serono, consumer health division, high-tech chemicals unit, Performance Materials, and Merck Millipore. Sigma-Aldrich will become part of Millipore, which accounts for about 25% of the company's annual revenue.

The deal would more than double the unit's adjusted earnings before interest, taxes, depreciation and amortization even without synergies.

Merck has already secured bridge financing for the all-cash deal and expects it to close midyear 2015, pending regulatory approvals. The acquisition has been unanimously approved by Sigma-Aldrich's board of directors and will be presented to Sigma-Aldrich's shareholders for approval at a special meeting.

Sigma-Aldrich has delivered consistent results in recent years, with revenue and profit often meeting or exceeding analysts' expectations. For the three months ended June 30, the company posted $701 million in sales, up 2.9% over the prior-year period, while the bottom line jumped 12%, driven by growth in the U.S. research market.

Michael Calia and Natalia Drozdiak contributed to this article.

Write to Neetha Mahadevan at neetha.mahadevan@wsj.com

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