Actavis, the indebted Icelandic generic drugs maker looking to buy German peer Ratiopharm, has raised the prospect of taking the enlarged company public should it win the auction, two people familiar with the sale process said on Monday.

Executives at Actavis, which is vying with with Pfizer and Teva, said in a presentation to Ratiopharm's top management that an initial public offering could be carried out in 5-8 years, the sources told Reuters.

Actavis opted to forgo backing from Swedish buyout firm EQT in the Ratiopharm auction, several sources told Reuters last month. Deutsche Bank, Actavis's main lender and which, according to sources, is owed more than 4 billion euros ($5.5 billion), has approved Actavis's decision to go alone, in a wager that a tie-up with Ratiopharm would lift the German bank's chances of recouping its loans.

In its presentation, Actavis said Deutsche Bank could swap some of its debt for an equity stake in the combined company, cutting the debt burden significantly, the sources said.

The merged company would use Ratiopharm's headquarters in Ulm, southwestern German, and benefit from €300 million in synergies per year, the executives were quoted as saying by the sources.

Ratiopharm and Deutsche Bank declined to comment. A Germany-based spokesman for Actavis was not available for comment.

Last week, Pfizer wheeled out its chief executive and pledged to invest in growth as it sought to win Ratiopharm, a week after Teva outlined its plans, people familiar with the situation said. Sources have said bids so far value Ratiopharm at about €3 billion including debt, which would make the deal the biggest generics takeover since Teva's $7.5 billion purchase of U.S. rival Barr, announced in July 2008.

Industrial heir Ludwig Merckle put Ratiopharm on the block as part of concessions made to creditors by his father Adolf Merckle who committed suicide in January 2009 after ceding control of his business empire to lenders during the financial crisis.