Outlook: This was more than just a clash of egos

as it just clash of ego, or something more substantive that caused the Glaxo Wellcome merger with SmithKline Beecham to fall apart? Certainly there appears to have been a large element of the former. But equally, it doesn't seem credible that this was the whole story. With so much riding on the outcome, deals of this magnitude are not meant to fail on matters as trivial as who has the bigger office. When mergers come unstuck, the one (personality clash) is usually a symptom of deeper rooted structural and cultural differences.

In the case of big companies, these differences are often profound, despite the homogenisation of management and marketing techniques brought about by the process of globalisation. It may well be that companies of this size and ambition simply aren't meant to merge - that they are just too different and already too large to make it work. You can have all the synergies, cost cutting potential, and in this case supposed scientific advantages of combining rival drug discovery technologies, in the world but still they would not add up to anything without the cultural unity and purpose that lies at the heart of all successful modern day corporations.

The salutary lesson in pharmaceuticals is Pharmacia & Upjohn, which since the two companies were merged has degenerated into a case study of factional infighting and loss of direction. In this instance, the two companies had national and language rivalries to surmount as well as underlying cultural ones. That's not the case with Glaxo and SmithKline. None the less, the differences are big enough to set the alarm bells ringing. If clash of personality has saved these two companies from the same fate as Pharmacia & Upjohn, then shareholders may have something to be thankful for after all.

Perhaps the biggest mystery is how the two sides managed to get so close to the alter without realising their inability to work with one another. Glaxo Wellcome and SmithKline tried once before to merge - about this time last year - but the talks broke down before being made public on who would occupy the top posts. It was thought that the removal of Sean Lance as chief executive in waiting at Glaxo, had lanced that particular boil (as it were) and that the way had been cleared for marriage. Two weeks of talking turkey has revealed otherwise.

So how did Sir Richard Sykes and Jan Leschly come to make such a mistake? Part of the answer lies in the speed with which all this happened. There was SmithKline in merger talks with American Home Products. That was a deal that would have converted SmithKline finally and fully into an American company. For Sir Richard, who is passionate in his defence of Britain's world lead in pharmaceuticals, that was too much. A big part of his motivation became that of keeping SmithKline British, and he rushed into a deal which in truth needed a much longer gestation period.

Within days it became clear that the deal was misconceived, but there was too much riding on it to pull the plug. Sir Richard is a stubborn, often belligerent Yorkshireman. He was never going to work happily with the equally autocratic Jan Leschly, a go-getting, Americanised, Dane.

There were wider issues too. Was it really credible that the top, second, and third tier of jobs be shared equally between the two companies when the rationale for the merger was prescribed pharmaceuticals, where Glaxo is far bigger than SmithKline? According to insiders there was snobbery and arrogance on the part of Glaxo's people, who looked down their noses at SmithKline's over the counter and consumer products. Here then was the potential for wider ranging discord and argument.

There may have been other matters too. SmithKline is growing more strongly than Glaxo right now, but its medium term product pipeline is probably not as good and its patent protection on existing products not as waterproof as it pretends.

The general view in the City is that ego has scuppered what would have been a sensationally good merger with unparalleled potential for new product development. The truth is a good deal more complex and if by halting the process at the eleventh hour Sir Richard has caused executives more generally to question the feasibility and motives of the global mega-merger, he may have done everyone a service. But then with all those fee hungry investment bankers and corporate lawyers around, that may be expecting too much.

REX/Eye Candy
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