Drugmaker Mylan offered to buy rival Perrigo for $28.9 billion in a deal that would create a powerhouse for generic medicine.

Mylan, which makes about 1,400 medications, offered $205 a share in cash and stock for Perrigo, which acquired the rump of Irish pharma group Elan for $8.6 billion in 2013, according to a statement Wednesday.

That represents a 25 per cent premium over Tuesday’s closing price for Perrigo, which makes a range of products including skin gels, injectables and nasal sprays.

Perrigo said its board will meet to discuss the proposal and that there’s no certainty an offer will be made.

The deal would be Mylan’s biggest, more than four times the size of anything else it has attempted.

Mylan’s bid would add to a record period of consolidation in the pharmaceutical industry. Mylan agreed last year to acquire non-US operations of Abbott Laboratories for $5.3 billion as part of a plan to move its tax address to the Netherlands.

Perrigo completed a similar tax manoeuvre in 2013, acquiring Elan so it could be domiciled in Dublin. Both companies’ operating headquarters remain in the United States.

While Mylan's offer for Perrigo was a surprise, a combination of the two companies makes sense, said John Schroer, sector head of US healthcare at Allianz Global Investors, which holds Mylan shares.

“On the surface, between the Mylan brand around the world, the greater scale and distribution strength that they have, I think there is a solid strategic benefit of folding in Perrigo and combining it with Mylan,” he said.

In a letter to Perrigo chief executive Joseph Papa dated Monday, Mylan chairman Robert Coury called a deal a natural fit that would create a company with about $15 billion in annual sales.

“As you and I have discussed on a number of occasions over the past few years, a combination of Mylan and Perrigo offers clear and compelling strategic and financial benefits,” Mr Coury wrote. “This is the right time for our two companies to move forward together, and Mylan and our board are firmly committed to making this combination a reality.”

Mr Schroer said it was fair to assume Mylan went public with its takeover offer because Perrigo’s board hasn’t been open to a deal in prior talks.

He said the timing might also be a defensive move amid speculation that Mylan itself was a takeover target of Teva, the Israeli drugmaker.

Mr Coury offered to make Papa co-chairman of the combined company, with Mylan CEO Heather Bresch and president Rajiv Malik keeping their roles. Mr Coury proposed that other top Perrigo executives join as well.

Generic drugmakers have been actively consolidating recently and moving into new areas.

Teva agreed to buy Auspex Pharmaceuticals for about $3.5 billion in March, giving it medications that curb tics and other movement disorders.

Actavis agreed to pay about $66 billion for Allergan, the maker of anti-wrinkle treatment Botox, late last year.

Mylan’s Ms Bresch has made no secret of the company’s ambitions to expand. In an interview in January, she said the company’s lower tax rate from its move to Europe would give her financial flexibility to “do some pretty sizable deals”.

Mylan was founded in 1961 in West Virginia by two Army veterans who sold drugs out of the back of a Pontiac Bonneville, according to the company. The Food and Drug Administration approved its first medicine, the antibiotic penicillin, in 1966.

The company says it makes about one of every 11 medicines prescribed to Americans, including EpiPen, used to treat allergic reactions.

Last year, generic drugmakers announced or completed more than $100 billion in deals, worth five times more than any year since at least 2005.

Perrigo’s revenue is more diversified than Mylan’s. Last year, half of its $4.06 billion in sales came from its consumer healthcare division, including store-brand versions of popular over-the-counter medicine like Sudafed and NyQuil, sold in retailers such as Wal-Mart and Walgreens. It also makes store- brand baby formula, vitamins and dietary supplements.

Mylan has hired Goldman Sachs as financial advisers, and Cravath, Swaine and Moore as legal advisers. – Bloomberg