Merger talks between Fisons and Medeva drugs groups collapsed yesterday after the two failed to reach agreement over the deal they had been negotiating for three months.
The news surprised the market, sending Medeva's shares down 13p to 222p by the close, with Fisons' putting on 2p to 191p.
In a statement announcing the termination of the negotiations, first publicly revealed in April, Medeva's chairman, Bernard Taylor, said: "Our discussions have taken place in a constructive atmosphere, but it has not been possible for the two sides to reconcile their respective views on suitable terms for a merger."
Attempting to forestall the market's disappointment, Mr Taylor said the failure to agree was "not a disaster: there are still plenty of opportunities to develop the business". Medeva also revealed that profits would be 30 per cent up when the company announces interim results next week, brought forward from early September, suggesting a figure of close to pounds 29m - ahead of expectations.
Stuart Wallis, Fisons' chief executive, who has overseen a revival at the company since his arrival last September, said: "We didn't believe we could go ahead on the basis that was beneficial to shareholders and acceptable to Medeva. So we believed it was best to terminate discussions."
He confirmed that price was the main sticking point. "After a period of time it became clear that the gap between us was considerable and it didn't make any sense in trying to bridge it."
Analysts believe Medeva was looking for a price of around 300p a share, which would value the company at close to pounds 900m, whereas Fisons took as its starting point a figure of 250p. Neither side would comment yesterday on how far apart they were, but the gap is thought to have narrowed to about 10 per cent.
Mr Wallis quickly moved to quash any speculation that the talks had foundered on how the management positions would be shared out in the combined group. "That was addressed at a very early stage and everyone was happy with that," he said.
The path might have been smoothed by the fact that Mr Taylor is eligible for retirement in October, when he reaches his 60th birthday, and would stand to pick up profits of more than pounds 9m from options which could be exercised in the event of a takeover.
Medeva had looked a perfect match for Fisons. Under Mr Wallis it has been rapidly selling off operations and was looking to acquire the sort of drugs owned by Medeva to push through its extensive marketing network.
Some analysts believe Fisons now faces the greater challenge following the breakdown of talks between the two sides. "It does leave us with more questions about where Fisons goes from here than it does Medeva," said Paul Diggle, an analyst with the broker Societe Generale Strauss Turnbull.
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