Watson Pharmaceuticals Inc is close to buying Swiss-based Actavis for around $7 billion, marking the latest deal between generics companies racing to achieve economies of scale, three sources familiar with the matter said.

The deal would see U.S.-based Watson, already among the world's five largest generic drugmakers, paying between 5.0 billion and 5.5 billion euros ($6.6-7.3 billion) for Actavis, a business of comparable size to its own, the sources said.

After rapid expansion in the early 2000s, Actavis underwent a leveraged buyout in 2007 by Icelandic tycoon Bjorgolfur Thor Bjorgolfsson, which left Deutsche Bank holding billions of euros of its debt. It has since been seen as a target for either an eventual trade sale or an initial public offering.

Targeting Actavis is a bold move for Watson, whose previous biggest acquisition was the $1.75 billion purchase of Arrow Group in 2009, which established a foothold for the company in Europe.

The much larger acquisition of Actavis could be made to work since there would be scope for significant synergies, including the possible closure of some manufacturing capacity in the United States.