The chairman of iSoft has stoked concerns that its largest customer is trying to engineer an acquisition of the troubled healthcare IT group on the cheap, after blocking the group’s planned sale to IBA Health, an Australian group.

John Weston said advisers for CSC, the US IT group and a key contractor on the NHS’s IT modernisation programme, had gone over his head to try and buy the group’s debts. He also confirmed that CSC and a private equity partner had been one of the parties trying to buy iSoft as part of an auction process kicked off in the wake of last year’s accounting problems.

City analysts said the move raised concerns that CSC was looking to buy the company at a knock down price.

“They approached our banks with a view to buying our debt,” Mr Weston said. “They said that was to try and secure the financial stability of iSoft. That seems to us to be a rather odd thing to do”.

BACKGROUND

• ISoft merger back on course

• CSC prepared to offer cash for iSoft

• CSC 'to counterbid for iSoft' says NHS supplier

• Problems at Isoft are far from over

• Sparks fly between ISoft and CSC

ISoft comment: The hardline

ISoft is considering legal action against CSC over its attempt to block a sale to IBA. Read the comment here.

Related Internet Links

• ISoft company information

• ISoft share price chart

• ISoft forecasts

Related Links

• Problems at Isoft are far from over

ISoft’s current financing arrangements expire in November. The company's debts stood at £93 million at the end of April.

If it fails to secure a sale it could be forced to pursue a rights issue to shore up its balance sheet. By buying iSoft’s debts CSC would have put itself in a powerful position to influence the company.

Mr Weston also said iSoft had held talks with CSC’s private equity partner as recently as last week, suggesting CSC could still have its sights on the UK group, which is supplying software and systems to CSC as part of the NHS programme.

CSC declined to comment.

His comments came as iSoft said it is considering taking legal action against CSC, which has tried to block the £140 million deal.

Under a change of control clause negotiated last year when iSoft’s NHS contract was renewed, CSC effectively has a blocking vote on a sale.

Gary Cohen, executive chairman of IBA, expressed surprise at CSC’s decision and said both his firm and iSoft had been advised there were grounds for claiming it had “unreasonably withheld and/or delayed its consent”.

ISoft’s sale to IBA was originally agreed in mid-May.

Mr Weston said iSoft was yet to receive clarification on CSC’s reasons for not consenting to the IBA sale.

A spokeswoman for IBA said it was still hopeful of securing CSC’s agreement but was considering its options.

IBA’s plans to buy iSoft were thrown into disarray earlier this week after it emerged that CSC wrote to IBA stating that it planned to object to the proposed takeover.

CSC stressed that its decision to block the sale was solely in the interests of ensuring the “successful delivery” of the NHS project, which has been beset by cost overruns and delays. It said it had been in “active dialogue” with IBA since takeover talks began in January, adding that it had also “engaged” with iSoft and its bankers "to explore ways to underpin [ITS]long-term financial stability".

Sources have suggested that CSC is moving to engineer a back-door acquisition of iSoft once it has reached distressed levels. At the time, iSoft denied it was in dialogue with CSC.

ISoft spent most of last year in crisis after a series of profit warnings, the discovery of accounting irregularities and with its shares losing more than 90 per cent of their value.

Its banks agreed last year to back the company financially, but its interest rate repayments are burdensome, increasing the pressure for it to find a buyer.

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