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.

Why JPMorgan Is Undervalued on Long-Term Earnings Growth Estimates

Low-Interest Rates Woes? High-Yield Closed-End Funds May Be the Cure

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%.

Regarding the deal, aside from the 4% additional premium, which values Shire at around $91.10 per share, Shire's shareholders will now own about 25% of the combined company. This is up from AbbVie's last offer of a 24% stake. Shire said it is ready to endorse this offer with the caveat that it is "subject to satisfactory resolution of the other terms of the offer."

At this point, we can only speculate what these "other terms" are. Both companies are deep into negotiations. Phone messages left with AbbVie and Shire representatives were not immediately returned. But this deal makes too much sense not to happen. It will benefit both companies.

AbbVie is willing to shell out $41.83 in cash and 0.896 shares for each share of Shire. At $91.10, this represents a premium of 42% from Shire's June 19 closing price. It was at that point AbbVie's M&A overtures were first made public.

There's nothing cheap about this deal. A 42% premium trumps the 30% premium we have seen from similar drug/med-tech deals.

Medtronic's (MDT) $42.9 billion deal for Covidien (COV) (29% premium) was the most recent example. And Pfizer (PFE) was willing to walk away from its $118 billion takeover attempt for AstraZeneca (AZN) after AstraZeneca thought the 30% premium undervalued the company.

As for Shire, which hasn't been shy about doing its own deals (picked off ViroPharma in 2013), AbbVie will be landing a respected name in its core market -- one that has grown its revenue by more than 60% in the last five years. AbbVie, which has grown its revenue by roughly 30% during that same span, sees the value. As should investors.

Why JPMorgan Is Undervalued on Long-Term Earnings Growth Estimates

Low-Interest Rates Woes? High-Yield Closed-End Funds May Be the Cure

In the most recent quarter, not only did Shire post 20% revenue growth, the company delivered double-digit growth in three major product lines. With Shire's Rare Diseases business growing almost 40%, AbbVie's 42% premium will pay for itself in only a few years.

What's more, Shire's advances in areas like neuroscience and gastrointestinal (up 16% and 17%, respectively) gives AbbVie that level of diversification it's been looking for. Management wants a way to offset the reliance of its blockbuster arthritis drug Humira, which accounts for more than 60% of AbbVie's total sales.

With Shire's management projecting its drug portfolio to generate roughly $10 billion in sales by 2020, this supports the recent call of Mark Purcell, analyst at Barclays, who noted that an AbbVie/Shire union could yield close to 20% in accretive earnings for AbbVie in the next six years.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

More from Opinion

AAP Exclusive: Cramer Says The President is No Longer on the Side of the Bulls

AAP Exclusive: Cramer Says The President is No Longer on the Side of the Bulls

Why It Makes Perfect Sense for Netflix and Amazon to Buy Up Movie Theaters

Why It Makes Perfect Sense for Netflix and Amazon to Buy Up Movie Theaters

2 More Reasons to Sell All Your Stocks and Run Away

2 More Reasons to Sell All Your Stocks and Run Away

Sean Hannity's Link to Trump Lawyer Raises Questions: Doug Kass Insider

Sean Hannity's Link to Trump Lawyer Raises Questions: Doug Kass Insider

Netflix Blowout Earnings Remind Investors of One Thing: This Company Is a Beast

Netflix Blowout Earnings Remind Investors of One Thing: This Company Is a Beast