The £1.5 sterling billion merger between Northern Ireland pharmaceutical manufacturer Galen and the Dutch group Ferring has become the latest victim of the stock market slump and the merger talks have now been abandoned. Galen is about half the size of its prospective partner and the merger would have been, in effect, a reverse takeover of the Craigavon-based group. But the transaction would have also needed a substantial equity injection to ensure the minimum 25 per cent free float required by the Stock Exchange.

Almost 65 per cent of Galen shares are controlled by its directors, notably the chairman, Dr Allan McLay, while Ferring is in effect owned by one individual.

As a result of the all-paper deal, directors of the merged group would have owned well in excess of 75 per cent of the shares and would have needed a major share issue to bring this shareholding down to the level required by the Stock Exchange. "We would have been a long way short of the proposed 25 per cent free float," said a Galen spokesman.

Galen shares have been suspended since the proposed merger was revealed in June, but the stock markets have since fallen heavily. This meant that the merged group would not have been able to issue new shares at anything near the 415p sterling at which the shares were suspended.

Sources said that Galen was unwilling to place shares with institutions at a level that the management believed would seriously undervalue the company.

At 415p sterling, Galen had a stock market value of £503 million sterling (£550 million). Ferring is thought to be about twice the size of the Northern Ireland firm and the suggested market value of the combined group at the time of the around £1.5 billion.

Galen shares will be relisted in Dublin and London and are likely to trade down from the 415p suspension price - reflecting the fall in the markets since June and some disappointment that the merger did not go ahead as planned. In a statement, Galen said that it aims to continue generating shareholder value by developing products in the ethical pharmaceutical industry, providing clinical trials services and by developing applications for its intravaginal ring drug delivery technology.

Galen will announce its results for the year to the end of September on November 5th. Brokers are expecting strong growth.