Updated from 4:32 a.m. EDT

GlaxoSmithKline ( GSK) confirmed Monday it has agreed to acquire privately held U.S. skincare products maker Stiefel Laboratories.

The British drugmaker will acquire Stiefel for $2.9 billion cash and assume $400,000 of debt. GlaxoSmithKline will pay an additional $300,000 cash based on future performance.

"As part of our strategy to grow and diversify GSK's business, we are continuing to make new investments through targeted acquisitions," said Andrew Witty, GlaxoSmithKline's CEO, in a statement Monday. "This transaction will create a new world-leading, specialist dermatology business and re-energize our existing dermatology products.

Pro forma 2008 revenue of the combined dermatology businesses was about $1.5 billion, representing a share of 8% of the global prescription dermatology market, the companies said. Sales of Stiefel's products for 2008 were about $900 million, while sales of GlaxoSmithKline's prescription dermatology products were about $550 million.

Stiefel's leading products include Duac for acne, Olux E for dermatitis and Soriatane for severe psoriasis.

The companies said cost synergies are expected primarily from combining manufacturing and administrative functions. The companies expect annual pretax cost savings of up to $240 million by 2012 with integration costs of about $325 million over the next three years.

The deal is expected to be slightly dilutive to GlaxoSmithKline's earnings in 2009 and 1% to 2% accretive in 2010.

Stockholders of Stiefel have approved the transaction, which is expected to close in the third quarter.

Coral Gables, Fla.-based Stiefel, which makes acne treatments and other skin creams, lotions, washes and vitamins, had reportedly drawn interest from Johnson & Johnson ( JNJ) and Novartis ( NVS)when it put itself on the block earlier this year. The company is partly owned by Blackstone Group ( BX).

Copyright 2008 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. AP contributed to this report.

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