(FORTUNE Magazine) – It seems that deals driven by big executive egos can also be undone by them. At least that's the best line so far on why pharmaceuticals giants Glaxo Wellcome and SmithKline Beecham called off their $70 billion merger last month, in what would have been the world's largest corporate marriage. SmithKline blames Glaxo's chairman, Sir Richard Sykes, for suddenly reneging on agreements about some key executive jobs, and turning what was supposed to be a merger of equals into a takeover--a la Glaxo's hostile acquisition of drugmaker Wellcome three years ago. Glaxo blames a power grab by SmithKline. It claims the smaller company wanted to run the prescription-drugs business from its base in the U.S.

It is astonishing that such issues hadn't been ironed out before talks were announced in January, considering Sir Richard and SmithKline's chief, Jan Leschly, had been talking about a merger as long ago as March 1997. At that time, some people at Glaxo wanted SmithKline to divest its consumer health-care business (including toothpaste and Tums), which would have made SmithKline account for only a third of the equity of the merged company. But once SmithKline began separate merger talks early this year with American Home Products, Sir Richard put aside any doubts and decided to pursue a merger of equals with SmithKline.

Despite the market buzz that there were questions about SmithKline patents, SmithKline asserts that due diligence turned up no major financial or patent issues. If that's true, it seems that Sir Richard simply changed his mind. Why? "He suddenly saw he was giving away executive power," says one Glaxo insider. As part of the deal, Sir Richard had promised Leschly, who operates out of Philadelphia, that he could be CEO of the merged firm, with Leschly's No. 2, Jean-Pierre Garnier, in line to succeed him. (Sir Richard would have been chairman.) "Richard would have thought, 'Here I am based in London, with the real power in the U.S., and Garnier next in line,'" says this insider. "The Glaxo people woke up to the fact that SmithKline was running the show."

This isn't the first time Sir Richard has changed his mind. Only last autumn, after promising COO Sean Lance the top job, Sir Richard pulled the rug out from under him, claiming Lance wasn't up to the job of succeeding him as CEO. He chose U.S. head Robert Ingram instead. (Other sources say Lance's abrupt departure stemmed from a disagreement over pursuing the SmithKline talks.)

The whole affair suggests an astounding lack of corporate maturity. "They've made a right real cock-up of the negotiations," observes former COO Lance. But the problems SmithKline and Glaxo had in trying to get along show up throughout the pharmaceuticals business. Says Jordan Lewis, a consultant based in Washington, D.C., who has written several books on mergers: "There's almost no collaboration between giants in the pharmaceuticals industry. The only significant collaboration is with the biotech firms for new products, and that is mostly a power game where the big guys have the clinical development skills and the little guys have the product. To get synergy, you have to use teamwork. That is absent in much of this industry." Why? Drug companies have the financial clout to push their agendas and develop drugs on their own, and tend to be a lot older and set in their ways.

To Lance, who watched Glaxo's nasty takeover of Wellcome, ego is the culprit. "Megalomania seems to be the driving force of these mergers," says Lance, who won't comment on his departure from Glaxo. "Egos are taking precedence over future strategies."

And that's too bad, because Glaxo needs SmithKline's genetic technology, and SmithKline needs Glaxo's combinatorial chemistry to develop its many possible drug targets. Institutional investors, unhappy the deal fell apart, were pressing the parties in March to return to the bargaining table. But that pressure probably won't be enough to revive the deal. Pride not only goeth before a fall: It's also a bitter pill to swallow.

--Janet Guyon