Glaxo to Buy Stiefel for $2.9 Billion

GlaxoSmithKline PLC agreed to acquire Stiefel Laboratories Inc. for about $2.9 billion in a deal that continues a wave of acquisitions in the drug industry.

Closely held Stiefel, a U.S. maker of dermatology products, is part-owned by buyout firm Blackstone Group. An auction of the company drew interest from several major global drug companies, including Sanofi-Aventis SA, after Stiefel was put up for sale earlier this year.

Glaxo will also assume about $400 million in Stiefel's debt. A potential further $300 million cash payment is contingent on future performance, Glaxo said.

The deal the latest in a wave of takeovers among big pharmaceutical companies, which are looking for new sources of sales growth as some of their biggest drugs face competition from cheaper generics.

Stiefel products treat a wide range of skin ailments. The company makes treatments such as the DUAC acne gel and OLUX, an anti-itch foam for the scalp. The company has been controlled for more than 160 years by the founding Stiefel family. It has expanded in recent years through a string of acquisitions, including the roughly $600 million purchase of Connetics Corp. in 2006. Blackstone invested $500 million in Stiefel in 2007 for a large minority stake.

Now based in Coral Gables, Fla., Stiefel was founded in Germany as a maker of medicated soap. It has annual sales of roughly $1 billion and 4,000 employees and calls itself the largest independent dermatology company in the world. Other details about its financial performance aren't available.

Included in this year's pharmaceutical megadeals are Pfizer Inc.'s pending $68 billion acquisition of Wyeth and Merck & Co.'s agreement to buy Schering-Plough Corp. for $41 billion. Glaxo Chief Executive Andrew Witty has signaled a lack of interest in such blockbuster deals. But that doesn't mean the company isn't in deal-making mode.

Just last week, Glaxo struck an alliance with Pfizer to create a new company combining their HIV businesses. That deal is expected to give Glaxo access to Pfizer's more-promising profile of AIDS drugs in development, and provide opportunities for cutting costs. Glaxo will initially own 85% of the venture, which could be valued at more than �4 billion ($5.92 billion).

Though a number of big pharmaceutical CEOs have sworn off megadeals, many of them are actively looking for smaller acquisitions. Aiding the drug companies' ability to do deals has been a friendly fund-raising environment, with bond investors eager to lend to the biggest names in the industry, which are considered defensive bets in a worsening economy. The combination of large and small deals in the works has made the drug sector a bright spot in an otherwise dismal global takeover climate.

For Blackstone, the deal would represent a positive development in a difficult market for private-equity firms, which have been constrained in their ability to sell investments by the depressed merger and IPO markets. What's more, most deals struck in 2007, at the height of the leveraged-buyout craze, are deeply under water for the private-equity firms.

It's unclear how big of a profit Blackstone could make on the Stiefel deal.

Lazard Ltd. is advising Glaxo on the Stiefel deal, with Blackstone bankers advising the sellers.