A definitive agreement has been reached in which New Jersey-based Actavis (NYSE:AGN) will acquire Ireland-based pharma company Warner Chilcott (UNKNOWN:WCRX.DL) in an all-stock transaction valued at $8.5 billion, the companies announced today.

The proposed deal will expand on the existing specialty pharma business of Actavis, particularly therapeutics in areas including women's health, gastroenterology, urology, and dermatology.

At closing, which is expected by year's end, Warner Chilcott shareholders will receive 0.16 shares of the newly combined company, tentatively called "New Actavis," for each share of Warner Chilcott they own. Based on Actavis' closing price of $125.50 a share on May 17, that amounts to $20.08 for each  Warner Chilcott share, a 43% premium over Warner's 30-day volume-weighted average trading price, ending on May 9. Actavis shareholders will receive one share of New Actavis for each share owned at closing.

New Actavis intends to incorporate in Ireland after closing, and will be led by the Actavis executive management team. Activis CEO and President Paul Bisaro was quoted as saying, "The combination of Actavis and Warner Chilcott creates a strong specialty brand portfolio focused in therapeutic categories with strong growth potential, and is supported by a deep pipeline of development programs."

Existing shareholders of both Actavis and Warner Chilcott must approve the transaction. The boards of directors of each company have unanimously agreed to terms of the deal.