Updated from 9:50 a.m. EDT

ImClone Systems ( IMCL) has agreed to be acquired by Eli Lilly ( LLY) for about $6.5 billion.

The agreement follows ImClone's rejection of a sweetened takeover offer from Bristol-Myers Squibb ( BMY). Bristol-Myers last week announced its intent to go hostile with its bid for ImClone, raising its offer to $62 a share and going directly to shareholders.

The Eli Lilly agreement, which values ImClone at $70 a share, has been approved by the boards of both ImClone and Eli Lilly. Shares of ImClone, which makes the cancer drug Erbitux, were rising 2.6% to $66.67 in recent trading.

Eli Lilly said the offer represents a premium of 51% to ImClone's closing stock price on July 30, the day before Bristol-Myers Squibb's acquisition offer for ImClone was made public.

"This combination delivers compelling and certain value to ImClone stockholders," said ImClone CEO John Johnson in statement Monday.

Bristol-Myers indicated it would not raise its offer, but also isn't walking away empty-handed. The company said it owns roughly 14.4 million shares, or 16.6%, of ImClone -- thus the transaction is worth about $1 billion in cash for Bristol-Myers.

"We felt it was in the best interest of Bristol-Myers Squibb shareholders not to raise our previous $62/share all cash offer, exercising discipline and evaluating this potential investment within the context of other alternatives open to the company," Bristol-Myers Chairman and CEO James Cornelius said in a statement.

The Eli Lilly transaction isn't subject to any financing condition and is expected to close in either the fourth quarter of 2008 or the first quarter of 2009, Eli Lilly said.

By acquiring ImClone, Lilly will gain a marketed cancer drug, Erbitux, and control over ImClone's know-how in developing and manufacturing biologic drugs.

Lilly will also gain ImClone's pipeline of five cancer drugs in various stages of early- and mid-stage clinical trials. This would beef up Lilly's internal cancer drug pipeline.

"This strategic combination will create one of the leading oncology franchises in the biopharmaceutical industry, offering both targeted therapies and oncolytic agents along with a pipeline spanning all phases of clinical development," said Lilly in a release.

Eli Lilly said it will incur a one-time charge to earnings for acquired in-process research and development, but can't estimate now the amount of the charge. The company expects the transaction to be accretive to earnings on a cash basis in 2012.

Certain entities associated with ImClone Chairman Carl Icahn, who hold about 14% of ImClone's outstanding common stock, have agreed to tender their shares to the offer.

It was reported last week that Eli Lilly was ImClone's mystery bidder. Icahn said the mystery suitor made a proposal not subject to financing or further due diligence. Negotiations were reportedly under way last week and the company requested that ImClone not reveal the bidder's name until negotiations were complete.

"We feel that the Eli Lilly transaction vindicates our decision to oppose in 2006 a potential transaction in which the company would have been sold at approximately $36 per share which the prior board favored," said activist investor Carl Icahn, chairman of ImClone's board of directors.

Eli Lilly shares were down 5.4% to $39.16. Meanwhile, Bristol-Myers shares gave up 4.5% to $19.51.