The U.S. acquisition is the latest in a string of deals in the drugs sector, but is significantly smaller than recent mega-mergers, reflecting the British-based group's declared focus on bolt-on buys.
Stiefel, part-owned by buyout firm Blackstone Group
It was put up for sale a month ago and attracted interest from a number of large pharmaceutical companies, including Novartis AG
Glaxo, the world's second-largest drugmaker, is paying $2.9 billion in cash for Stiefel and will take on about $400 million of Stiefel's debt. A further $300 million cash payment is contingent on future performance, the companies said on Monday.
That overall price is four times Stiefel's 2008 sales of around $900 million, but the British group expects to extract substantial savings from merging the business, which will retain the Stiefel identity, into its structure.
Glaxo expects annual pre-tax cost savings of up to $240 million by 2012, with integration costs of some $325 million over the next three years.
Excluding those costs, the deal will dilute Glaxo's earnings per share by less than 1 percent in 2009 and be 1 percent to 2 percent earnings accretive to EPS in 2010.
The purchase will nearly treble the size of Glaxo's skincare business, giving it an 8 percent share of the global prescription dermatology market.
It's an opportunity for Glaxo to strengthen its product mix, said Navid Malik, industry analyst at Matrix Corporate Capital. This business should be very complementary.
Glaxo shares were 1.2 percent higher at 10.51 pounds by 1057 GMT, outperforming a 0.7 percent gain in the European healthcare sector <.SXDP>.
Deutsche Bank analysts said the deal was not particularly cheap, but the four times trailing revenue paid was below the 4.6 times average of major drugs deals in recent years and there could be potential for significant revenue synergies.
Founded in Germany in 1847, Stiefel is based in Coral Gables, Florida, and produces a range of skin treatments including Duac, for acne, and Olux E, for dermatitis.
The purchase fits with the strategy of Glaxo Chief Executive Andrew Witty, who wants to broaden the focus of the group away from its traditional reliance on small-molecule prescription medicines -- or pills.
Witty has already struck several smaller deals to build Glaxo's presence in emerging markets, and last week signed a deal with Pfizer Inc
He has rejected the idea of a large-scale deal, along the lines of Pfizer's $68 billion purchase of Wyeth
Stiefel is controlled by the founding Stiefel family and current CEO Charles Stiefel will continue to lead the enlarged dermatology business under the Glaxo umbrella after the deal closes in the third quarter of 2009.
Private-equity group Blackstone, which invested $500 million in the company in 2007 to take a substantial minority stake, advised Stiefel on the sale. Glaxo was advised by Lazard.
(Editing by Sharon Lindores)