PARIS (AP) -- Two of Europe's largest drug makers, Hoechst of Germany and Rhone-Poulenc of France, are merging their pharmaceutical and agrochemical operations.

Tuesday's deal is a step toward a full merger between the French and German companies, which should be completed within three years, said Rhone-Poulenc chairman Jean-Rene Fourtou.The widely-anticipated combination of the pharmaceutical and agrochemical businesses would create a company with annual sales of about $20 billion, tying Switzerland's Novartis for leadership in the life sciences industry.

The new company will be called Aventis and will be based in Strasbourg in eastern France. Hoechst and Rhone-Poulenc will each own 50 percent.

"We want to create a new company, with European roots and global reach, to take full advantage of the extensive opportunities of life sciences in the 21st century," Rhone's Fourtou and Jurgen Dormann of Hoechst said in a statement.

It was anticipated that Dormann would be the new chairman of Aventis, and Fourtou the vice chairman, the statement said.

The two companies expect the deal will help them save $1.2 billion in three years, with 60 percent of those savings in their pharmaceutical operations and 40 percent in agrochemicals.

Unions in France and Germany have been critical of the merger, fearing layoffs. Hoechst employs 118,000 workers and Rhone-Poulenc, 68,000.

Analysts have warned against a full merger until the heavily indebted firms reduce costs.

Rhone Poulenc shares were 4.2 percent lower in afternoon trading as investors expressed displeasure that a full merger wasn't announced.