The £140m takeover of UK health software supplier iSoft by Australian rival IBA Health has hit a major snag with iSoft’s main contractor Computer Sciences Corporation refusing to grant consent to the deal.

IBA Health announced today that it has received a letter from CSC advising that it will not provide its consent for a change of control in iSoft. This approval is a pre-requisite for the IBA takeover of iSoft proceeding.

On 15 May IBA Health tabled a £140m takeover bid of iSoft that was backed by the iSoft board.  CSC is iSoft’s prime contractor under the £12.4 billion NHS IT modernisation programme, for which iSoft’s is delivering administrative and clinical software.

According to iSoft CSC’s letter does not provided any reasons as to why it has declined to grant consent. Both IBA and iSoft and IBA say they are seeking clarification from CSC regarding the matter.

Today’s Financial Times newspaper quotes Greg King, IBA’s head of business development, as saying: "We’ve shown them our package for regenerating iSoft, we’ve guaranteed not to disrupt the current programme, promised to retain the current management."

IBA said that it had no plans to withdraw its bid and hoped to be able to work through issues that needed resolving.

The FT further quoted King as saying: "CSC has been good at taking advantage of iSoft’s downfall when it was penalised by the market for accounting irregularities," he said. "When iSoft needed help it put in stepping rights for development, when iSoft needed refinancing, it required that control could not change without its consent."

CSC acquired step in rights on the development of iSoft’s Lorenzo software and a veto on a change of ownership at iSoft after it signed a new memorandum of understanding with the company in August 2006 after iSoft posted losses of £382m.

An iSoft spokesperson said that discussions with other potential buyers had effectively ceased when the iSoft board recommended the IBA Health takeover offer. "There were a number until the point the IBA offer was recommended by the board. What the situation is now I’m not sure, we may have to find out. But the first priority is to find out what CSC’s reasons are."

iSoft says that it currently has funding in place to let it continue operating until November this year.