Isoft and Torex in talks over £700m merger

Isoft and Torex, two healthcare software companies, are to merge in an all-share deal that will create a group worth more than £700m.

Analysts said the move would buoy the new group's chances of winning part of a £2.3bn contract to modernise the computer database used by the NHS.

The two companies said they were in "advanced discussions" over a deal that values Torex's stock at £283m. The new company will be called iSoft.

Shares in Torex rose 1.5p to 70.5p while shares in iSoft fell 32.5p to 307p. Isoft will offer 1.7692 new iSoft shares for each Torex share, giving Torex investors 44 per cent of the enlarged group.

Stuart Lunn, an analyst at Etrade, said: "I think the deal will be taken positively. Each company has its strengths that will be brought together in an environment that is still in a state of flux."

The move represents a shift in strategy for iSoft away from pure software sales towards Torex's mixed model of software and services, David Johnson, an analyst at Altium Capital, said.

Patrick Cryne, iSoft's chief executive, said the groups were a perfect fit. "Our customers will span the entire range of healthcare from GPs to hospitals and into community care."

Mr Cryne will chair the enlarged group, while Chris Moore, Torex's chairman, will become chief executive. Isoft's current finance director, Tim Whiston, who was due to take over as chief executive, will retain his post.

The deal values Mr Moore's 8.7 per cent stake at £25m. He has promised to accept the offer when a final bid is launched. Around one-third of iSoft's share capital has been pledged in support of the merger.

In a joint statement, the companies said that as one group they would be "better positioned and will have greater scale to exploit the business opportunities within the dynamic and growing market".

Mr Lunn said the chance of another bidder emerging to spoil the party was slim but possible, adding: "You can't discount someone coming in with a silly offer but it would have to be a US player." He said McKesson, IDX and Cerner were all candidates.

The new group will have to wait until October to hear whether it has been selected as one of the parties to help lead the revamp of the NHS' computer systems. Both companies are thought to be among the 31 on the final shortlist. The three-year contract is one of a series of schemes aimed at bringing the NHS into the digital age at a cost of more than £15bn over the next decade.

The deal is subject to approval from the competition authorities. The two companies have agreed a break fee of £1m-£2.25m should a rival scupper the bid.