Elan, which has a market capitalization of nearly $7 billion, put itself up for sale last week in an effort to fend off a hostile offer from U.S. investment firm Royalty Pharma.

Forest is among several mid-size drugmakers considering an offer for Elan, the people said on Wednesday. They asked not to be named because details of the auction have not been made public.

The discussions are at an early stage and Forest may decide against making an offer, the people cautioned.

Shares of Forest closed 0.65 percent higher at $41.84 on the New York Stock Exchange on Wednesday, valuing the company at about $11.1 billion. Elan's New York-listed shares rose 2.7 percent to end at $14.15.

Representatives of Forest, Elan and Royalty Pharma declined to comment.

News of Forest's interest comes a day after Royalty Pharma dropped its hostile bid for Elan, worth up to $8 billion, leaving the Irish drugmaker free to court other suitors.

Jefferies & Co analyst Corey Davis said Forest could achieve a lower tax rate if it were to buy Elan and become domiciled in Ireland, but the tax advantage would not be as substantial as some of the other possible suitors. The tax advantage is the main reason to buy Elan because it is not developing any significant drugs, he said.

Forest already has a relatively low 22 percent tax rate because it has an Irish subsidiary, he said.

Davis said fast-growing companies would have the most to gain by buying Elan, to get closer to the Irish tax rate of 12.5 percent. "The benefit (of becoming an Irish company) is that all future products, ones not yet approved, could be owned in Ireland and have a lower tax rate."

Royalty Pharma's hostile bid for Elan, launched four months ago, was marked by a court hearing, injunctions and a war of words. An Irish court ruled this week against new terms added to its offer, and Royalty Pharma moved on.

A potential deal comes at a time when Forest is at a crossroads. The company recently agreed to add a representative of Icahn to its board, averting a new proxy battle. Icahn is Forest's second-largest shareholder, with a stake of about 11.5 percent.

In addition, Forest last month announced that Chief Executive Howard Solomon would retire at the end of this year after running the company for more than 35 years. It said it was reviewing internal and external candidates.