Updated July 18, 2014 10:12 a.m. ET
LONDON—U.S. drug maker AbbVie Inc. ABBV +1.57% AbbVie Inc. U.S.: NYSE $54.36 +0.84 +1.57% July 18, 2014 1:36 pm Volume (Delayed 15m) : 28.54M P/E Ratio 21.14 Market Cap $85.10 Billion Dividend Yield 3.08% Rev. per Employee $760,960 07/18/14 HEARD ON THE STREET: Taxing Te... 07/18/14 AbbVie to Buy Shire for $54 Bi... 07/18/14 Pharmalot, Pharmalittle: As th... More quote details and news » said Friday it reached a deal to buy Shire SHPG +1.37% Shire PLC ADS U.S.: Nasdaq $256.90 +3.46 +1.37% July 18, 2014 1:35 pm Volume (Delayed 15m) : 4.65M P/E Ratio 57.44 Market Cap $48.42 Billion Dividend Yield 0.39% Rev. per Employee $985,899 07/18/14 AbbVie to Buy Shire for $54 Bi... 07/17/14 Morgan Stanley's Profit Lifted... 07/16/14 Proposed 'Inversion' Ban Hits ... More quote details and news » PLC for about $54 billion, one of the largest deals to date where a U.S. company seeks to lower its tax rate by buying a foreign rival.
The board of Dublin-based Shire recommended the offer—which comprises £24.44 ($41.78) in cash and 0.8960 AbbVie shares per Shire share—just hours ahead of a deadline set by the U.K. takeover panel. Shire had resisted AbbVie's advances for more than two months and rejected four previous offers as too low.
The deal values Shire at a 53% premium to its closing price May 2, the day before AbbVie's first offer, and almost double where its shares were trading at the start of the year.
"We believe that this offer reflects the substantial value that we have already created for Shire's shareholders and the strength of our future prospects," Shire Chairman Susan Kilsby said.
If successful, Shire shareholders would end up owning around 25% of the new combined company—above the 20% threshold needed to pursue an "inversion," where a company changes its tax residence through an acquisition.
U.S. Treasury Secretary Jacob Lew this week called for an immediate change to U.S. laws to "shut down this abuse of our tax system."
The agreement includes a chunky breakup fee of around $1.6 billion, or 3% of the value of the transaction, payable to Shire should AbbVie withdraw its offer or be unable to complete the deal. A fee of around $500 million applies if AbbVie shareholders vote it down.
The breakup fee would apply even if the deal gets called off over a change in U.S. tax policy. AbbVie said it believes the transaction is "highly executable" and is looking to close it in the final quarter of this year.
Shire raised its earnings and sales guidance for the full year Friday, saying it now expects low-to-mid-30s percentage growth in its preferred U.S. measure of earnings per share, and midteens percentage growth in sales.
It also released second-quarter results showing a record 22% growth in product sales. Net profit more than doubled to $523 million from $258 million in the same quarter last year.
North Chicago, Ill.-based AbbVie plans to base the combined company—also to be called AbbVie—in the U.K. to bring its tax rate down to 13% by 2016, from 22% at present.
U.S. companies have been racing to acquire European rivals to lower their taxes. Mylan Inc. MYL +0.31% Mylan Inc. U.S.: Nasdaq $51.59 +0.16 +0.31% July 18, 2014 1:36 pm Volume (Delayed 15m) : 2.29M P/E Ratio 30.63 Market Cap $19.22 Billion Dividend Yield N/A Rev. per Employee $356,117 07/18/14 AbbVie to Buy Shire for $54 Bi... 07/17/14 Miles D. White: Ignoring the F... 07/16/14 France's Sanofi Looking at Opt... More quote details and news » earlier this week agreed to buy assets from AbbVie's former parent, Abbott Laboratories, ABT +1.24% Abbott Laboratories U.S.: NYSE $42.42 +0.52 +1.24% July 18, 2014 1:36 pm Volume (Delayed 15m) : 4.76M P/E Ratio 27.53 Market Cap $61.65 Billion Dividend Yield 2.07% Rev. per Employee $316,219 07/18/14 AbbVie to Buy Shire for $54 Bi... 07/17/14 Miles D. White: Ignoring the F... 07/17/14 Pharmalot, Pharmalittle: We're... More quote details and news » in a deal that will create a new Netherlands-based holding company. In May, Pfizer Inc. PFE +0.02% Pfizer Inc. U.S.: NYSE $30.55 +0.01 +0.02% July 18, 2014 1:36 pm Volume (Delayed 15m) : 14.35M P/E Ratio 18.22 Market Cap $197.49 Billion Dividend Yield 3.40% Rev. per Employee $650,283 07/18/14 When to Leave a Lagging Fund o... 07/18/14 AbbVie to Buy Shire for $54 Bi... 07/16/14 Michael J. Graetz: Inverted Th... More quote details and news » tried and failed to buy AstraZeneca AZN.LN +0.59% Astrazeneca PLC U.K.: London GBp4340.00 +25.50 +0.59% July 18, 2014 4:35 pm Volume (Delayed 15m) : 3.47M P/E Ratio 41.30 Market Cap GBp54.47 Billion Dividend Yield 5.38% Rev. per Employee GBp314,498 07/18/14 AbbVie to Buy Shire for $54 Bi... 07/16/14 Michael J. Graetz: Inverted Th... 07/16/14 France's Sanofi Looking at Opt... More quote details and news » PLC for around $120 billion to relocate in the U.K.
At about $54 billion, a completed Shire acquisition would be a contender for the year's biggest merger, alongside Valeant Pharmaceuticals International Inc. VRX +0.47% Valeant Pharmaceuticals International Inc. U.S.: NYSE $122.09 +0.57 +0.47% July 18, 2014 1:35 pm Volume (Delayed 15m) : 1.21M P/E Ratio N/A Market Cap $43.85 Billion Dividend Yield N/A Rev. per Employee $405,223 07/18/14 AbbVie to Buy Shire for $54 Bi... 07/10/14 Allergan's Acquisition Target:... 06/27/14 Pershing, Allergan Resolve Poi... More quote details and news » 's hostile attempt to take over Botox maker Allergan Inc. AGN +1.08% Allergan Inc. U.S.: NYSE $167.61 +1.79 +1.08% July 18, 2014 1:36 pm Volume (Delayed 15m) : 857,461 P/E Ratio 39.13 Market Cap $49.23 Billion Dividend Yield 0.12% Rev. per Employee $569,026 07/18/14 Hedge Fund Samlyn Capital Hold... 07/18/14 AbbVie to Buy Shire for $54 Bi... 07/17/14 Morgan Stanley's Profit Lifted... More quote details and news » for a similar amount. It would be the year's biggest inversion deal, topping Minneapolis-based medical-device company Medtronic Inc. MDT +0.89% Medtronic Inc. U.S.: NYSE $62.07 +0.55 +0.89% July 18, 2014 1:36 pm Volume (Delayed 15m) : 3.79M P/E Ratio 20.33 Market Cap $61.29 Billion Dividend Yield 1.97% Rev. per Employee $347,041 07/18/14 HEARD ON THE STREET: Taxing Te... 07/18/14 AbbVie to Buy Shire for $54 Bi... 07/16/14 Congress at Odds Over How to C... More quote details and news » 's $42.9 billion takeover of Ireland's Covidien COV +1.60% Covidien PLC U.S.: NYSE $88.44 +1.39 +1.60% July 18, 2014 1:36 pm Volume (Delayed 15m) : 3.03M P/E Ratio 25.13 Market Cap $39.27 Billion Dividend Yield 1.45% Rev. per Employee $269,481 07/18/14 HEARD ON THE STREET: Taxing Te... 07/18/14 AbbVie to Buy Shire for $54 Bi... 07/16/14 Congress at Odds Over How to C... More quote details and news » PLC.
As well as the tax benefits, AbbVie is seeking a deal to diversify from its heavy reliance on the rheumatoid-arthritis drug Humira. The company depends on Humira, the world's top-grossing drug, for more than half its sales. Humira will start losing patent protection in 2016, exposing it to potentially much cheaper competition.
AbbVie said the combined company would be a leader in the fields of immunology, rare diseases, neuroscience and metabolic diseases.
It has argued that its greater global resources and scale could help boost Shire's sales, and that its larger pool of scientists and regulatory experts could accelerate the companies' new-drug development.
"By combining AbbVie and Shire, we're creating a unique, diversified biopharmaceutical company," said AbbVie Chief Executive Richard Gonzalez. "The combined company would benefit from a best-in-class product-development platform, a stronger pipeline and more enhanced R&D capabilities."
But the two companies have little overlap in their respective businesses, limiting likely cost synergies. AbbVie lacks a presence in Shire's twin specialties of drugs to treat attention-deficit disorder and treatments for rare genetic diseases such as Hunter syndrome.
Shire Chief Executive Flemming Ornskov will lead the integration on behalf of Shire, reporting directly to Mr. Gonzalez, and will oversee the creation of the combined company's rare-disease unit from Switzerland.
Two members of Shire's board, Ms. Kilsby and Dominic Blakemore, are to join the board of the new company. The new AbbVie intends to register in the U.K. dependency of Jersey, retain operational headquarters in Chicago and apply for a new listing on the New York Stock Exchange.
Shire shares were up 3.3% to 4,965 pence in afternoon London trading Friday, valuing the company around $50 billion.
—Ian Walker contributed to this article.
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