The deal, approved by the boards of both companies, will importantly add Hospira's portfolio of sterile injectable treatments and biosimilar drugs to Pfizer's broad pharma offerings.
Pfizer will pay $90 a share in cash for Hospira, a nearly 40% premium to Hospira's closing price Wednesday.
Hospira shares soared 35% to $87.50 in mid-morning trade, while Pfizer shares were up 3.2% at $33.10.
Pfizer emphasized that Hospira's product line strategically complements its own and will add a growing international revenue stream.
The companies estimated the market for sterile injectables, injectable drugs which can treat a range of maladies from pain to cancer, will be about $70 billion in 2020.
The world market for biosimilars, officially approved adaptations of off-patent biotech drugs made by others, will hit $20 billion in five years, they said.
"Hospira's business aligns well with our new commercial structure and is an excellent strategic fit for our Global Established Pharmaceutical business, which will benefit from a significantly enhanced product portfolio in growing markets," said Pfizer chairman and chief executive Ian Read.
An analyst note from Jefferies said the Hospira deal would boost Pfizer's offerings in its "global established pharmaceuticals" division, which some analysts believe Pfizer could spin off.
Pfizer in 2013 announced it was reorganizing its drugs business, separating older medications from research-oriented divisions. Many analysts now believe the company will split in two.
"We think this deal signals a firm intent to separate GEP in 2017 and leaves more firepower for further deals to augment" other Pfizer divisions, Jefferies said.
The "manageable" size of the Hospira transaction "won't likely be the last deal that Pfizer is going to do in the near-to-medium term as they try to boost their two businesses ahead of a potential split into two standalone entities 2-3 years from now," said Credit Suisse in a client note.
In 2014, Pfizer unsuccessfully sought to acquire British pharma behemoth AstraZeneca for some $120 billion after the British company refused to negotiate. Pfizer had sought AstraZeneca in part to shift its headquarters for tax purposes to a foreign jurisdiction with lower tax rates.
Consolidation has been on the uptick in the pharmaceutical sector as companies contend with patent expirations and pressure from hospitals and insurers to lower costs.
Transactions in global health care reached $410.8 billion in 2014, up 38% from the prior year, according to Dealogic.
Copyright Agence France-Presse, 2015