The German company said the transaction -- which is expected to close by the end of the fourth quarter of 2018 -- "is subject to regulatory approvals and satisfaction of certain other customary closing conditions".
"Merck, a leading science and technology company, announced that it has signed an agreement to sell its global consumer health business to P&G for approximately 3.4 billion pounds in cash, or approximately $4.2 billion at current exchange rates," the drug-maker said in a regulatory filing to the BSE.
"For the Indian business, it has been agreed that P&G will acquire Merck's majority shareholding in Merck Ltd (India), a publicly traded company, and subsequently make a mandatory tender offer to minority shareholders," it said.
The regulatory filing added that as part of the transaction, Merck and P&G have agreed on a number of manufacturing, supply and service agreements.
Merck said it intends to use the net proceeds from the divestiture primarily to accelerate deleveraging.
"At the same time, it will allow Merck to increase flexibility to strengthen all three business sectors," it said.
According to Merck, between 2015 and 2017, its consumer health's net sales grew organically by 6 per cent, outpacing the consumer health market's growth of approximately 4 per cent over the same period. For the full year 2017, net sales of the consumer health business amounted to 911 million pounds.
"The divestment of the consumer health business is an important step in Merck's strategic focus on innovation-driven businesses within healthcare, life science and performance materials.
"It is a clear demonstration of our continued commitment to actively shape our portfolio as a leading science and technology company," Stefan Oschmann, Chairman of the Executive Board and CEO of Merck, said in a statement.
"The attractive price reflects the high asset value and the performance consumer health has delivered," he said.
The company said the transaction will be executed through the sale of its shares in a number of legal entities as well as various asset sales that comprises the consumer health business across 44 countries, including more than 900 products and two consumer health-managed production sites in Spittal (Austria) and Goa (India).
"As part of the transaction, it is contemplated that approximately 3,300 employees, mainly from consumer health, will transition to P&G upon completion of the transaction, subject to prior works council consultation where required," the company said.
This includes Merck employees who, through their work, are fully dedicated to consumer health, and employees in share deal entities, it added.
"These leading brands and the great employees of Merck's consumer health business will complement our personal health care business very well," said Tom Finn, President, P&G Global Personal Health Care.
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