The decision by pharmaceuticals giants SmithKline Beecham and Glaxo Wellcome to cancel their US$160 billion merger appears to be a triumph of egos over good business sense. SmithKline yesterday appeared to blame Glaxo for indicating 'it was not prepared to proceed on the agreed basis', saying Glaxo's 'recent conduct of these discussions . . . had inevitably strained the relations between the two companies'. Glaxo in contrast issued a one-sentence statement to its shareholders, and analysts said it would revert to its old strategy of making small acquisitions to raise its market share. Overwhelming opinion was that a deal that looked great on paper was never going to work when both firms were led by men with equally forceful personalities. Glaxo chairman Sir Richard Sykes is regarded as a shrewd operator, born in the straight-talking county of Yorkshire in northern England, and is likely to have often clashed with the equally domineering Jan Leschly, the chief executive of SmithKline. While Sir Richard is regarded as having worked wonders with Glaxo, particularly after pulling off the audacious takeover of Wellcome in 1995, Mr Leschly is credited with turning SmithKline around when he joined in 1990. SmithKline is now one of the most potent forces in pharmaceuticals, and since becoming chief executive in 1994, Mr Leschly has presided over the acquisition and sales of businesses worth GBP10 billion (about HK$127.3 billion). 'Obviously this seems to be a personality thing, rather than because of the fit,' Societe Generale pharmaceuticals analyst Mike King said. 'The businesses are very well suited and a big [share price] premium had been built behind the merger.' Another analyst said: 'While the premium will disappear, the rationale behind the merger is still intact.' The SmithKline-Glaxo Wellcome deal would have created the world's largest pharmaceuticals group, with a huge combined presence in the United States and generating annual sales of about $25 billion. There was very little overlap, and in fact much to complement the two groups, such as Glaxo's strengths in gastro-intestinal, respiratory and viral drugs, which were seen to be a good source of profits that would add to SmithKline's strong position in antibiotics, vaccines, and anti-depressants. In addition, SmithKline would have presented an attractive retail, over-the-counter network, which would have enabled a company such as Glaxo to sell its non-prescription drugs such as the Zantac ulcer drug, or the Zovirax herpes treatment. Analysts said any other company that could prove similar complementarity was a good contender for a merger, and several named Zeneca, a British pharmaceuticals group, which has a strong presence in Britain and Europe, but lacks a sufficiently strong market in the US. 'That must now be seen as a potential target for Glaxo or SmithKline,' said Societe Generale's Mr King. One of the most crucial aspects of any fit, analysts said, was the potential of the two firms' combined research and development business. In the case of Glaxo and SmithKline, the two companies would have harnessed a huge advantage over their competitors in terms of how much work they would have been able to do on drugs at the clinical or pre-clinical stage. Added to that, marketing power is also seen as one of the keys to future dominance in the pharmaceuticals industry. A recent decision by Warner Lambert to link up with fellow US drugs firm Pfizer to sell its Lipiton cardio-vascular drug, is said to have worked wonders. 'It's a good drug, but it is not significantly better than any of the others. The co-marketing deal with Pfizer had such an impact that it has made it one of the biggest sellers of its kind,' Mr King said. Analysts said the collapse of the Glaxo-SmithKline deal meant any other partners, who could demonstrate strong marketing power, boosted research and development capability, and clear elements of complementarity would become the darlings of the market place. Prior to its proposed link with Glaxo, SmithKline had been talking to American Home Products, another US drugs group, whose ailing chief executive and nervous investors are said to be seeking a merger partner. But yesterday, analysts ruled out a link-up between the two groups. Aside from the fact that they are not seen as having such a compelling level of complementary businesses, American Home is also facing a potentially crippling legal case in the US. Its recently launched diet product Redux is alleged to cause side-effects in heart valves, and has triggered a class action against the company. 'As a result we are left in a position where we don't know what the liability is,' said Mr King. Indeed, most analysts said SmithKline and Glaxo would be in no hurry to rush back into the merger market after their damaging experience of recent days. SmithKline is regarded as having embarrassed itself, after not only walking out on Glaxo, but also for not having made the American Home deal work. When the group announced its results last week, it said it hoped to make a statement on its Glaxo merger early next month, while Glaxo said nothing. Given that all the activity has now come to nothing, analysts said investors would be less positive about supporting any further merger activity the company might consider. For Glaxo, the reasoning behind avoiding any other merger is more straightforward, as its size means there are very few other players who could give the group the kind of research and development or marketing critical mass it seeks. 'I think we will just have to wait and see,' one analyst said. 'The merger generated a lot of excitement in the market, and now that it is off, everyone is going round winded. It is going to take a bit of time to recover.'