Doubts raised on potential iSoft sale to McKesson

The potential £200m sale of iSoft may be in jeopardy, according to a report in the Times today which says that preferred bidder McKesson has insisted on unspecified contract conditions that would prevent a deal being concluded.

According to the newspaper, US health IT and drugs distribution giant McKesson has been front-runner to buy iSoft. In recent weeks, however, talks with Computer Sciences Corporation (CSC), to which iSoft is the main sub-contractor on three key NHS deals, have broken down over contract conditions that McKesson has insisted on.

“McKesson would be the best buyer because they’re a cash bidder, but they would have to be persuaded to drop all their current demands,” the Times quoted a source close to the sale as saying. “Until they do that, they’ve been told that they’re not going forward.”

The Times says that should the sale of iSoft stall the troubled health software company would be forced to consider attempting a rights issue.

Two other bidders, US private equity firm General Atlantic Partners, and Australia’s IBA Health, are also reported to have made it on to the shortlist, but are not thought to be cash bidders or proposing terms unacceptable to CSC.

IBA Health this week announced the establishment of a health software joint venture in China, focusing on hospitals around Shanghai, called Shanghai People’s Health Information Technology Co Ltd.

IBA chief executive Steve Garrington was formerly CEO of Torex Health, which iSoft bought in late 2003, providing it with critical mass to successfully bid for NHS National Programme for IT (NPfIT) contracts.

Delivery of iSoft’s core Lorenzo next generation clinical care records system under NPfIT has been repeatedly delayed, first deliveries originally due in late 2004 are now not expected until 2008.

Shares in iSoft lost more than 90 per cent in 2006 after a string of profit warnings and the discovery of accounting irregularities, which led iSoft to restate its accounts and wipe out most of its profits. The company is the subject of an ongoing investigation by the Financial Services Authority.

Last August iSoft was given a lifeline by its banks and CSC, but the terms of its bank loans are understood to become increasingly expensive over the next few months, requiring the company to secure new long term funding.