So, Rice University last week finally decided to pass on the proposed merger with Baylor College of Medicine.

In theory, the deal makes sense. Both are top-notch academic institutions with campuses within a stoneís throw of each other. Each institution would have given the other something that it needs. Baylor would have gotten the financial support of Riceís multi-billion dollar endowment, while Rice would have landed a strong scientific research and clinical care center in one of the nationís leading medical institutions, the Texas Medical Center.

Although Rice President David Leebron supported the merger, large segments of the Rice faculty and alumni opposed the deal, primarily on financial and cultural grounds. Indeed, my sense is that Leebron quit pushing the Rice Board of Trustees to approve the deal when it became apparent that a consensus of Rice constituencies were opposed to the marriage.

And Baylor clearly finds itself in precarious financial condition, not completely of its own doing. After its 54-year teaching hospital relationship with Methodist Hospital soured in 2004, and a subsequent deal with St. Lukeís Episcopal Hospital did not work out, BCM decided on a plan to go it alone and build its own teaching hospital.

However, the ambitious deal has been pretty much a disaster from the start. After floating almost $900 million in bonds to finance construction of the hospital, Baylor announced last year that it was temporarily suspending construction of the hospitalís interior as it works through its financial problems.

Meanwhile, BCM has lost over $300 million since the split with Methodist. Inasmuch as Baylorís endowment is less than a billion, those kinds of losses have placed BCMís financial condition at risk. Already in in technical default on multiple bond covenants, BCM is now facing the prospect of hiring a bondholder-required ìchief implementation officerî to oversee an overall financial reorganization. That would have been avoided if the Rice merger had succeeded.

Thus, Rice certainly had understandable reasons for passing on the deal.

Nevertheless, I wonder ñ did Rice make the right decision?

Despite its financial woes, BCM remains one of the elite medical and research institutions in the U.S. The merger would have undoubtedly brought a substantial increase in research funds in such fields as bioengineering, neurobiology, nano-biotechnology, stem cell biology and gene therapy. Although Rice would have been subsidizing BCMís financial problems in the short term, my sense is that the increase in research resources flowing to Rice over the years would ultimately make that bailout well worth it.

But even more importantly, Rice passed on an opportunity to take a calculated risk that could well have elevated Rice, BCM, the Texas Medical Center and Houston to the forefront of medical and scientific research in the world.

Despite the risks, that kind of upside doesnít come around very often. Failing to realize that is one of the key reasons why Texas has lagged badly behind states such as California and New York in the development of Tier 1 research institutions and all the benefits that such institutions provide to the state and its communities.

Thus, Rice is keeping its chips and betting that it can develop its scientific research just fine without BCM. But if I were to place a bet on which institution is closer to the cutting edge of such research after the next 25 years, Iím still putting my chips on Baylor.