The all-share link between the biotechnology groups will create a world leader in the fast-growing market for heart-disease tests, where Shield and Axis had competed fiercely.
The deal - which comes less than two months after the pounds 21bn proposed merger between the British drug giant Zeneca and its Swedish competitor Astra - values Axis at pounds 68m. Although the merger is structured as a one- for-one share swap, the UK group will have to raise up to pounds 20m to meet Norwegian takeover rules requiring companies to pay minority shareholders in cash.
Investors in Shield, the bigger of the two groups, will end up with 62 per cent of the new company, which will have its headquarters in Dundee and its primary listing in London.
The merged group will have a market value of around pounds 177m and sales of pounds 9m, which could skyrocket if its leading products are successful, say analysts.
David Evans, Shield managing director, said the new company would use its scale to increase investment in its core cardiovascular market.
Axis and Shield have created rival versions of an innovative method of predicting heart disease that is cheaper and easier to use than existing tests. Axis's test was launched in early 1998 and is already used by the US drug giant Abbot Diagnostics, while Shield's kit is being launched on to the market. The tests measure the level of a chemical called homocysteine in a patient's blood. A number of studies have shown that high amounts of the substance are linked to heart attacks later in a patient's life.
Mr Evans said the merged company would "dominate" the market for this types of test. Industry experts estimate that the overall market for heart disease prediction is worth over pounds 500m a year.
City analysts welcomed the move, noting that small biotechnology companies needed to restructure to face the increasing buying power of the large pharmaceutical groups. "Shield and Axis have a good fit. The merger will give them more clout to deal with big pharmaceutical companies in licensing deals," said Nick Woolf, senior analyst with BancBoston Robertson Stephens.