A proposed merger between two major US law firms that would have created one of the world’s largest legal practices has been scrapped after the two sides failed to agree on terms.

The tie-up between New York-based Dewey Ballantine and Orrick Herrington & Sutcliffe of San Francisco, announced in September, would have created a global giant with around 1,500 lawyers and revenues of almost $1 billion (£535 million.)

But following a string of significant staff defections at Dewey Ballantine, the smaller but more prestigious of the two firms, and persistent reports of disputes over who would run the combined entity, the sides confirmed they would stay independent last night.

In a joint statement, the firms said: "A combination of this size and scope posed significant challenges. While both firms tried their best to work through these challenges, we were unable to bring the merger to completion. No one issue led us to this point."

The news follows an announcement in December that a crucial partner vote on the merger was being delayed, with the duo citing administrative issues. The two sides had previously released a bullish joint statement saying that they expected the deal to be agreed by the end of last year.

At least ten Dewey Ballantine partners have left the firm since the merger talks were announced, including two top mergers and acquisitions specialists and the heads of its bankruptcy and energy departments, prompting unease at Orrick.

Partner defections are considered more of a blow in the US, where clients are more likely to follow individual lawyers to new firms than they are in Europe, where client relationships are more institutionalised, residing with the firm as a whole rather than any one partner.

According to US press reports, the two sides also squabbled over how partners would share profits and the crucial issue of which side’s senior partner would control the enlarged firm.

Dewey partners were also said to be concerned that their prominent New York brand would be weakened by an association with a West Coast firm - an issue that was complicated by the fact that partner losses at Dewey during the talks raised the question of how strong and sustainable its brand really was.

The Wall Street Journal concluded that the merger "fell apart amid concerns of money, power and prestige."

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