The boards of AbbVie and Shire have reached agreement on the terms of a recommended combination of Shire with AbbVie that values Shire at approximately $54.61 billion.

The two companies said the deal will create a well-positioned and focused specialty biopharmaceutical company with sustainable leadership positions within areas of unmet need, including immunology, rare diseases, neuroscience, metabolic diseases and liver disease (HCV), and multiple emerging oncology programs.

"By combining AbbVie and Shire, we’re creating a unique, diversified biopharmaceutical company. The combined company would benefit from a best-in-class product development platform, a stronger pipeline and more enhanced R&D capabilities,” said Richard A. Gonzalez, chairman of the board and CEO of AbbVie. “The combination of AbbVie and Shire is attractive for shareholders of both companies, bringing the potential for strengthened sustainability of top-tier EPS growth, attractive free cash flow and enhanced cash returns to shareholders. The combination would provide us with enhanced access to cash that we can use to expand our portfolio and fund M&A to supplement organic growth."

Susan Kilsby, Shire chairman, said, "Shire has a long track record of delivering value for both shareholders and patients. Our growth profile has been accelerated under our new management team, who have successfully executed a focused strategy. 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. We believe that the combined group represents an exciting fit of two complementary businesses that will create a new market leader in specialty pharmaceuticals with a portfolio of fast growing products, a promising pipeline and enhanced growth prospects."

To undertake the transaction, AbbVie has formed a new company, New AbbVie, which is incorporated in Jersey, Shire's current place of incorporation. Following closing, New AbbVie will become the holding company of the Shire Group and the AbbVie Group.

Immediately following the closing, Shire shareholders are expected to hold approximately 25% of New AbbVie shares, offering Shire shareholders the ability to participate in the future prospects of the combined group. AbbVie stockholders are expected to hold 75% of New AbbVie shares.

Shire Shareholders will be entitled to receive approximately $41.72 in cash and 0.8960 New AbbVie shares for each Shire share. The merger terms represent an indicative value of approximately $89.58 per Shire Share based on AbbVie’s July 17 closing share price and an indicative value of approximately $90.79 per Shire share based on AbbVie's 30-day volume-weighted average price through July 17.

The $54.61 billion total, which values the entire issued and to be issued share capital of Shire on a fully diluted basis, represents a 53% premium to the May 2 share price, a 42% premium to the June 19 share price and an implied enterprise value/last 12 months EBITDA multiple of approximately 24x.

AbbVie expects the deal to be accretive to AbbVie's adjusted EPS in the first year following completion, growing to above $1.00 per share by 2020, with material ongoing financial and operating benefits. The AbbVie board also expects it to reduce New AbbVie’s effective tax rate to approximately 13% by 2016.

AbbVie believes a potential re-rating of New AbbVie is possible due to continued strength in the Humira franchise (the world's top selling medicine globally in 2013), the launch of a HCV therapy, advancement of exciting late-stage opportunities in oncology, immunology and other areas, and Shire's complementary rare disease and neuroscience platform.

It is AbbVie's intent to maintain a strong commitment to a growing dividend and to implement a significant share repurchase program.

The Shire board considers the terms to be fair and reasonable, and in the best interests of Shire shareholders as a whole, and intends to recommend Shire shareholders vote in favor of the resolutions to be proposed at the Court Meeting and the General Meeting.

The AbbVie board has approved the transaction and intends to recommend AbbVie stockholders vote in favor of the U.S. merger agreement.

Pursuant to the AbbVie merger, AbbVie stockholders will receive one New AbbVie share for each AbbVie share. It is intended the New AbbVie Shares will be listed on the New York Stock Exchange.

The deal is expected to close in the fourth quarter of 2014.