Takeda has raised its bid for Dublin-based Shire to £46 billion ($64.3 billion). Shire made the announcement without the consent of Takeda.
Takeda has declined about 24 percent this year, valuing the company at about $35 billion.
The Japanese firm first officially expressed interest in Shire last month, but has had a series of offers rebuffed.
Upon completion of the transaction, Shire shareholders will own nearly 50% of the enlarged company that combines the Irish and Japanese pharma firms. Shire PLC had a return on equity of 13.05% and a net margin of 2.14%.
Deal making has surged in the drug industry this year as large players look for promising assets to improve their pipelines. Takeda has also been gathering its R&D forces in the big Boston hub.
This isn't the first M&A bid for Shire - a $52 billion takeover by AbbVie had been agreed but was terminated in 2014 because of a change in U.S. tax rules. It would also be the third biggest acquisition of a UK-traded company in history.
But the transaction would be a huge financial stretch, and Takeda investors have been sceptical about the merits of a Shire deal, given the size of the potential purchase and concerns that a large share issue will be needed to fund it. Friday's proposal included just over $29 per share in cash and about $36 apiece in new stock for Shire. That valued Shire, which is led by Chief Executive Flemming Ornskov, at 44.3 billion pounds ($61.8 billion).
Since then, the Japanese firm made two more offers, which were rejected by Shire until the newly revised proposal made on 24 April. The deadline can be extended at the request of Shire.
Shire's board said that its recommendation of the revised proposal will be subject to satisfactory resolution of the other terms of Takeda's offer.
Shire focuses on treatments for rare diseases and attention deficit hyperactivity disorder and a takeover would catapult Takeda into the top ranks of global drugmakers.
Botox maker Allergan confirmed last week it would not make a bid for Shire, just a day after saying it was weighing up an offer.
It announced last week a sale of its oncology business to unlisted French drugmaker Servier for $2.4 billion.
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