An agreement could come as early as next week, the source said on Friday, who requested not to be identified as the matter is confidential.

Spokespersons for Raleigh, North Carolina-based Salix and Laval, Quebec based Valeant declined to comment.

A bid of $160 per share would value Salix at about $10.2 billion. Salix's stock jumped 4.1 percent to $156.88 in morning trading on the Nasdaq.

A deal of that size would be the largest ever for Valeant, which lost a takeover contest for Allergan Inc. last year. The usually acquisitive Valeant slowed its buying pace dramatically while it pursued Allergan, and Chief Executive Michael Pearson said last month that it would focus in 2015 on buying smaller, private companies. He did not rule out bigger deals, however.

Valeant's New York and Toronto shares rose nearly 3 percent.

CNBC first reported on Friday that Valeant was close to a deal with Salix.

Salix is working with advisers to consider its options in the midst of a management shakeup and inventory issues. Last November, Salix announced that supply levels for its irritable bowel syndrome drug, Xifaxan, and other drugs were higher than it had previously indicated, forcing it to slash its full-year earnings forecast.

Bloomberg, citing sources, reported earlier this month that British drugmaker Shire Plc was also interested in Salix. Endo International Plc has expressed interest but was rebuffed by Salix, according to a source.

Valeant said earlier this week that it would buy bankrupt cancer vaccine maker Dendreon Corp.