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GlaxoSmithKline Buys Stiefel For $2.9 Billion

British drug maker will pay $2.9 billion to buy American dermatology business Stiefel Laboratories -- the latest in a flurry of mergers and acquisitions in the pharmaceuticals industry.

LONDON (AP) -- British drugmaker GlaxoSmithKline PLC said Monday it will pay $2.9 billion to buy U.S. dermatology business Stiefel Laboratories Inc. -- the latest deal in a flurry of mergers and acquisitions in the pharmaceuticals industry.

GlaxoSmithKline will also assume $400 million in debt and has agreed to a further payment of up to $300 million depending on performance, bringing the total cost of the deal to up to $3.6 billion.

For Glaxo, the world's second-biggest drugmaker by revenue, it's the second midsize deal in less than a week. Last Thursday, Glaxo and No. 1 Pfizer Inc. said they are combining their HIV businesses -- 11 medicines on sale and a half-dozen more in human testing -- to create a new company. They will vault to the No. 2 market position, putting up $373 million in initial capital.

Privately owned Stiefel, the world's biggest independent dermatology company, makes prescription and over-the-counter medications including acne treatments and other skin creams, lotions, washes and vitamins. The Coral Gables, Fla., company put itself up for sale earlier this year, and reportedly had drawn interest from Johnson & Johnson and Novartis AG as well as Glaxo.

Glaxo has been moving to replace falling sales of older drugs facing generic competition by diversifying. The drugmaker has said it will lose about $5 billion worth of sales as demand falls for treatments like its diabetes drug Avandia -- linked to possible heart attack risk -- its antidepressant Wellbutrin and heart medication Coreg.

The deal, set to close in the third quarter, is expected to bring pretax cost savings of up to $240 million annually by 2012, mostly from cutting manufacturing and administrative jobs. That will initially be offset by integration costs of about $325 million over the next three years.

Excluding those costs, the deal should reduce Glaxo's earnings per share by less than 1 percent this year and then add 1 percent to 2 percent next year, the companies said.

Glaxo shares fell 56 cents, or 1.8 percent, at $30.03 in morning trading on the New York Stock Exchange amid a sharp decline in the broader market.

"Given near-term pressure on reported earnings, deals such as this should go some way towards reassuring investors at a time during which the company has opted not to provide short-term earnings guidance," said Jeremy Batstone-Carr, analyst at Charles Stanley & Co.

Glaxo said its existing prescription dermatological products will be combined with Stiefel's and sold under the Stiefel brand.

Stiefel's leading products include Duac for acne, Olux E for dermatitis and Soriatane for severe psoriasis. Stiefel's sales in 2008 were approximately $900 million, while Glaxo's sales of dermatology products -- Altabax, Bactroban and Cutivate -- was around $550 million, the company said.

"This transaction will create a new world-leading, specialist dermatology business and re-energize our existing dermatology products," said Andrew Witty, Glaxo's CEO.

"The addition of Stiefel's broad portfolio will provide immediate new revenue flows to GSK with significant opportunities to enhance growth through leveraging our existing global commercial infrastructure and manufacturing capability."

The combined business would have a 8 percent share of the prescription dermatology market globally, the companies said. Charles Stiefel will remain chief executive and chairman of Stiefel until the deal closes, then will lead the business unit for Glaxo.

The move follows a string of acquisitions in the pharmaceutical industry. Swiss pharmaceutical giant Roche last month agreed to pay $47 billion to buy out the share of biotech pioneer Genentech it didn't already own, while other deals are uniting Pfizer Inc. and Wyeth, as well as Merck & Co. and Schering-Plough Corp.

Stiefel was founded by John David Stiefel in Offenbach-on-Main, Germany, in 1847 as a candle maker, but later switched to producing medicated soaps. The company moved to the U.S. in 1910. It now has nearly 3,500 employees and factories in the U.S., Mexico, Brazil, Singapore, Ireland and Pakistan.

AP Business Writer Linda A. Johnson in Trenton, N.J., contributed to this report.

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