GlaxoSmithKline (GSK) said Monday it will buy Stiefel Laboratories for $2.9 billion in an effort to diversify its business.

Coral Gables, Fla.-based Stiefel makes dermatology products, is part-owned by buyout firm Blackstone Group and was put up for sale earlier this year. The transaction has been approved by Stiefel shareholders.

Glaxo said it expects to assume $400 million of net debt upon closing, and that a further $300 million cash payment is contingent upon future performance.

The two companies have combined revenue of around $1.5 billion a year, and around an 8% share of the global prescription dermatology market.

The companies said they expect the merger to provide up to $240 million in pretax cost savings by 2012, with integration costs of around $320 million over the next three years.

Stiefel had reportedly garnered interest from a number of drug companies, with such names as Sanofi-Aventis (SNY), Novartis (NVS) and Johnson & Johnson (JNJ) suggested as potential buyers.

Major pharmaceutical industry players are rushing to merge to beat back growing competition from generic drug makers and replenish their product pipelines. So far this year a number of deals have been announced, such as Pfizer’s (PFE) pending buyout of Wyeth (WYE) and Merck’s (MRK) pending takeover of Schering-Plough (SGP).

Stiefel produces products that help treat acne, dry skin, psoriasis and rosacea, among other things.

Stiefel, which has been controlled by the founding family since it was established in 1847, in 2007 sold a minority stake to Blackstone for $500 million. Its most recent merger deal was last August, when it purchased Princeton, N.J.-based Barrier Therapeutics for $148 million.