Drug distributor Australian Pharmaceutical Industries has offered about $727 million to buy all of rival Sigma Healthcare, aiming to consolidate in the face of increased competitive and regulatory pressures.

API said Friday the deal represented a premium of 69.4 per cent to Sigma's last closing price of 40.5 cents.

The proposal included 0.31 API shares and 23 cents in cash for each Sigma share, equating to 68.6 cents each.

API shareholders would own about 63 per cent of the combined entity if the cash-and-stock deal succeeded, API said in a statement.

API already owns nearly 13 per cent of Sigma.

"In the face of slowing revenue growth, projected margin and revenue pressures due to government policy and also increased competition, the merged business would provide scale and volume," API chairman Mark Smith said in a statement.

"The real benefits of the proposed merger come from infrastructure and back-office cost savings."

API intended to retain both companies' retail brands after the deal, he added.

API said it expected the acquisition to immediately add to earnings per share and deliver annualised gross cost savings of $60 million by year three of the merger.

This proposal is the latest in a series of deals in Australia's healthcare sector, such as hospital operator Healthscope's sale of its Asian pathology business to TPG Capital Management LP and Sirtex Medical's buyout by a Chinese consortium.

Most recently, Australian pathology and radiology group Sonic Healthcare agreed to buy Florida-based Aurora Diagnostics LLC.