The $50-a-share deal represents a nearly 37 percent premium over Par's closing price on Friday.

Under terms of the deal, Par may seek superior bids from third parties through August 24, and Par said its board would actively solicit proposals. If no better arrangement is found, the TPG deal is expected to close this year.

Par's top shareholder, Ralph Whitworth's Relational Investors, urged the company in May to consider a sale.

Par shares rose to $50.01 in mid-day trading after the deal was announced, after trading as high as $52.33 - well above the offer - earlier in the session.

"Even at $50 I still think there's still some value left at the company that is not being realized," Gabelli & Co analyst Kevin Kedra said, adding that he believed Par could be worth as much as $67 a share in a takeover.

Par ranked as the sixth-largest generic drugmaker by 2011 sales, according to pharmaceutical information company IMS Health. It has been seen as a takeover candidate for companies wanting to expand their presence in the U.S. generics market.

"A lot of the names would probably be companies outside the U.S. looking to get into the U.S.," Kedra said.

Teva Pharmaceutical Industries Ltd, Mylan Inc, Watson Pharmaceuticals Inc and the Sandoz division of Novartis are the biggest players in the U.S. generics market.

Kedra was skeptical that any of the bigger companies would be interested in Par, with the possible exception of Sandoz.

"They're not looking in the U.S.," he said. "They're all pretty strong there. Par wouldn't do too much for them."

The large generic drugmakers have been seeking to expand their presence outside the United States, into Europe and other markets where generics are relatively under-utilized.

The acquisition of Par comes after larger U.S. rival Watson agreed in April to buy Actavis Group for at least $5.6 billion to cement its status as one of the world's largest generic drug companies.

For its size, Kedra said, Par has a strong portfolio of patent challenges, which potentially allow it six months as the exclusive seller of generics. Such exclusivity periods can be valuable profit generators for generic drug companies.

Par, which posted 2011 revenue of $926 million, also sells niche brand medicines through its Strativa division.

Shares of two other small generic drugmakers, Impax Laboratories Inc and Hi-Tech Pharmacal, rose more than 3 percent and 8 percent respectively after the deal was announced.

Canaccord Genuity analyst Randall Stanicky said the U.S. generics market is still fragmented with the top five manufacturers comprising about 50 percent.

Relational Investors, which has a nearly 10 percent stake in Par, said in May the company's shares were trading - and would continue to trade - at a substantial discount to the value available in a strategic sale to a larger company with similar products. Substantial cost savings could be achieved in such a deal, it said.

JPMorgan served as financial adviser to Par, while Orrick, Herrington & Sutcliffe was legal adviser. TPG's financial advisers were Bank of America Merrill Lynch, Deutsche Bank Securities and Goldman Sachs, while Ropes & Gray served as legal adviser.

(Reporting by Lewis Krauskopf; Editing by Gerald E. McCormick, Maureen Bavdek, John Wallace and Sofina Mirza-Reid)

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