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AbbVie's Deal for Shire Benefits Investors in More Ways Than One

Stocks in this article: ABBV ABT SHPG MDT COV PFE AZN

NEW YORK (TheStreet) -- Better product diversification and an extensive drug pipeline have been at the top of AbbVie's (ABBV) priority list ever since the drug giant was spun out of Abbott Labs (ABT) at the beginning of last year.

With AbbVie moving closer Monday to securing its deal for Shire (SHPG), which will also come with significant tax savings, management looks to kill multiple birds with one stone. And patient investors who want higher profits and a boost in shareholder returns will be rewarded.

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There's now confirmation that both AbbVie and Shire have entered "detailed discussions." This comes on the heels of AbbVie having -- yet again -- raised its offer from $51.5 billion to $53.68 billion. This is now AbbVie's fifth offer. The two firms have danced since AbbVie's original offer of $46.5 billion was rebuffed.

At this point, it's not a matter of "if" a deal happens, it's a matter of "when." When the deal is done, AbbVie's stock should head toward the $70 level in the next 12 to 18 months, representing gains of close to 30%.

For that matter, a price target of $77.50 by 2016, which suggests gains of 42%, is also achievable. This is assuming that AbbVie follows through with plans to reincorporate in the British Island of Jersey, Shire's current headquarters. At that point, AbbVie, currently headquarter in Illinois, will only have to pay the U.K.'s 13% corporate tax rate, sheltering it from the United States' 35% corporate tax rate.

The tax savings, which will boost earnings, is central to the story. Not to mention, the deal immediately bolsters its pipeline. My $70 target is $1 more than the $69 price, which is currently AbbVie's highest analyst target

AbbVie shares, which are up 6% on the year to date, have shed 6% since reaching an intraday high of $58.27 two weeks ago. AbbVie was up $55.02, or 6 cents, near the Monday close. Shire was up about 2%.

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