If the ambitious and ground-breaking deal were to go ahead, Glaxo would assume control of its rival and orchestrate a purge of SmithKline's management, including the removal of Jan Leschly, its chief executive.
The innovative deal, designed to appease Glaxo's disgruntled shareholders, would mark the latest twist in the battle for control of what would be the biggest drugs company in the world.
Glaxo is exploring the possibility of putting forward the same terms of the original merger to the City, whereby its shareholders would take a 59.5 per cent stake in the combined group. The idea would be to offer shareholders the chance to realise the huge potential value the original deal would have created, which appeared to be lost once talks between the two sides broke down after a bitter dispute between Jan Leschly and Sir Richard Sykes, Glaxo's chairman.
The group is understood to be planning to test the water by discussing the idea with some of its largest institutional shareholders in an effort to recruit their support for such a deal.
Several large shareholders indicated yesterday they would consider it, in an effort to reap potential merger benefits.
Glaxo is understood to have ruled out launching a hostile bid at a significant premium to SmithKline's current share price. Any such deal would threaten to wipe out the potential cost savings from a merger and have the effect of transferring value to SmithKline's shareholders.
Glaxo and SmithKline stunned and angered the City earlier this week by announcing that merger talks had fallen through, an embarrassing episode which wiped pounds 13bn off the value of the two groups. The merger was the biggest deal in corporate history and would have created the largest drugs group in the world.
The original deal foundered after an acrimonious clash between senior executives. Glaxo is believed to have become increasingly concerned that Mr Leschly and Jean Pierre Garnier, SmithKline's operations director, were seeking to dominate the company.
SmithKline is run in a centralised way with Mr Leschly keeping a firm grip on all the group's divisions. That sat uneasily with Glaxo's devolved structure. Although Richard Sykes retains a tight rein on the business, much more responsibility is divested to divisional managers.
Glaxo was worried that Mr Leschly would have sought to run large swathes of the combined pharmaceuticals group from his American base in Philadelphia.Analysts estimate that a merger would bring costs savings of up to pounds 1.5bn a year. A combined group would also create a research and development powerhouse with annual expenditure of a least pounds 2bn. City observers were also excited about the combination of Glaxo's and SmithKline's long-term drug development programmes which could have produced a lucrative pipeline of new treatments.
Glaxo's shares rose 19p to 1757p yesterday, well short of 1985p, the price the stock achieved when merger talks were first announced. SmithKline's shares slipped 18p to 748p yesterday.