JOHANNESBURG - GlaxoSmithKline will take a 16 percent stake in Africa's biggest generic drug maker, Aspen Pharmacare, to expand its emerging market footprint in a deal worth 3.47 billion rand ($418 million).

The agreement, based on a transfer of assets rather than cash, cements an existing relationship between the companies and underlines Glaxo's commitment to growing in emerging markets as part of a strategy to diversify its business.

The companies said on Tuesday Aspen would issue 68.5 million new shares to Glaxo in exchange for Glaxo's manufacturing plant in Bad Oldesloe, Germany, and eight specialist medicines.

Analysts like the logic of the deal, which will give Aspen more muscle globally, but its shares fell as much as 7 percent as the tie-up disappointed those investors who had been hoping for a bigger and more valuable stakebuilding agreement.

Aspen will distribute Glaxo products in South Africa -- which generated sales of some 45 million pounds ($68.3 million) last year -- and the firms will team up to sell drugs in the rest of Africa, where revenue totalled 65 million pounds.

Extending our strategic relationship with Aspen supports GSK's strategy to accelerate sales growth in emerging markets, Abbas Hussain, Glaxo's head of emerging markets, said. The world's second-largest seller of prescription drugs will get a seat on the board of Aspen, whose CEO Stephen Saad said he hoped to eventually expand the partnership to other emerging markets such as the Middle East and Latin America.

We're finding our feet in the global world so to have a big brother partner to help us makes a big difference, Saad told Reuters. He left open the possibility of Glaxo raising its stake but stressed an outright buyout was not on the agenda.

GSK have got a strategy to grow in emerging markets, and so they could go and buy shares on the market if they want tomorrow, Saad said on the sidelines of a news conference. ...I think we'll see how it goes, we'll see how it works out.

Based on Aspen's closing share price on May 11, the deal is worth 3.47 billion rand. Shares in Aspen traded 5.6 percent lower at 47.87 rand by 1215 GMT.

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Strategically it looks very good for Aspen, said Andrew Joannou, a portfolio manager at Cape Town-based Afena Capital.

But you can see the market was expecting a little bit more than 16 percent, and it's not as lucrative for Aspen as the last transaction they did with Glaxo.

Aspen said in January it was in undisclosed talks and people familiar with the situation had told Reuters Glaxo was in discussions to take a significant stake. [ID:nLP289007].

Aspen, which also operates in Latin America and India, has already partnered with Glaxo on selling medicines under a deal clinched last July.

The power of the Glaxo brand has boosted Aspen's profile internationally and the deal will raise pressure on its rival Adcock Ingram (AIPJ.J) to seal a buyout attempt for Cipla Medpro South Africa (CMPJ.J) to help it compete more aggressively. [ID:nL6981515]

It ups the ante for companies like Adcock and Cipla with their Africa expansion plans, Frost & Sullivan healthcare specialist Peter Breitenbach said.

Glaxo said it would record a one-off non-cash, pretax profit on the disposal of the Glaxo assets to Aspen. The impact of the transaction to its earnings per share was expected to be accretive in 2009 and slightly dilutive in 2010.

Glaxo shares were up 2 percent at 1,044 pence.

Aspen said the deal, which is subject to regulatory approvals and is expected to complete before the end of 2009, would boost its earnings. ($1=8.300 rand=0.6591 pound) (Additional reporting by Ben Hirschler in London; Writing by Rebecca Harrison; editing by John Stonestreet and Mike Nesbit) (For full Reuters Africa coverage and to have your say on the top issues, visit: af.reuters.com)

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