SmithKline is coming under increasing pressure from institutional shareholders to consider the creation of a dual share structure similar to that used by Unilever or Shell rather than move to the US as it strives to complete the biggest corporate deal in history.
Most of the combined group's business and shareholders would be based in the US and shareholders fear that SmithKline and AHP are planning to set up home in America. Such a move would see the combined group disappear from the FTSE 100 and force many institutions to sell their holdings.
One institutional shareholder said yesterday: "It is unthinkable. We would be bitterly disappointed if they moved to America and they would not get away with it. We would be forced to sell our entire holding and in this market it is not easy to see what we would do with the cash."
Many funds specialise in tracking the index by buying a basket of FTSE- 100 shares and they would be forced to dispose of their holdings if SmithKline left the index. Others are strictly limited to the percentage of foreign stocks they can hold in their portfolios and would also be forced to sell up.
If institutions are forced to offload their holdings they fear they would miss out on the real benefits to come from a merger of the two drugs giants. "Why should we be forced to sell now and not benefit from the huge costs savings that will result from this merger. That would be totally unacceptable," said another large UK shareholder.
UK shareholders are even threatening to block the deal if SmithKline goes to the US. "This deal makes sense for SmithKline but if it doesn't make sense for us we could vote against it. If they are not careful shareholders could torpedo the merger." Almost two-thirds of SmithKline's shares are held by UK investors.
However SmithKline and AHP are also likely to face the wrath of US shareholders if they choose to seek a primary listing in the UK which would exclude the merged company from from the Dow Jones index.
"The only solution is to have a dual shareholding structure. If not it could cause problems for one side or another," said one industry analyst.
Groups such as Unilever have been able to create a structure which allows the shares to have a full listing in two countries. However the dual share structure can prove complex to to implement and administer.
Analysts believe SmithKline would prefer to be domiciled in the US. Jan Leschly, the groups forceful chief executive, and most of the board, already live there.
SmithKline's share price have fallen back since the merger was first announced over fears that it would move to the US and the shares fell another 1p to 724p yesterday.
Outlook, page 23