By Soyoung Kim and Greg Roumeliotis
NEW YORK (Reuters) - Blackstone Group LP
Blackstone has prevailed over rival private equity suitors Carlyle Group LP
But Blackstone is skeptical about a deal, given the high premium sought by Allscripts and challenges facing the company, the sources said.
Shares of Allscripts fell 11 percent to $11.05 on the Nasdaq on Friday. The shares closed at $10.88 on September 27, the day before news of a potential sale emerged.
Sources told Reuters earlier this month that Blackstone, Carlyle and TPG had made second-round bids for Allscripts.
The sources who identified Blackstone as the frontrunner in the auction asked not to be identified because the matter is not public. Allscripts, TPG, Blackstone and Carlyle declined to comment.
Allscripts said on November 8 that it was evaluating strategic alternatives, following potential buyout interest, and that it had enlisted Citigroup Inc
But the auction process proved challenging, with interested parties concerned about Allscripts' declining earnings and market-share losses to larger rivals, such as Cerner Corp
Allscripts has struggled to boost new business following its acquisition of Eclipsys Corp in 2010. The company had hoped to expand into software and equipment for hospitals and healthcare systems with the purchase of Eclipsys but ended up losing business to Cerner and closely held Epic Systems Corp.
New York-based Blackstone is an experienced investor in the sector. In April 2011 it bought healthcare IT provider Emdeon Inc for $3 billion.
MANAGEMENT, BOARD TURMOIL
The auction of Allscripts came several months after activist shareholder HealthCor Management installed three of its nominees to the Allscripts board, following a bitter fight with company management led by Chief Executive Glen Tullman.
HealthCor, which owned 7.5 percent of Allscripts as of June 30, sued the company in May seeking a proxy fight after Tullman refused its demand that he resign. Allscripts settled the fight in June by agreeing to add HealthCor's candidates to the board.
JMP Securities analyst Tim McDonough wrote in a note on November 27 that Allscripts' share price reflected around a 50 percent chance that the company would be acquired.
He said that while the company could attract offers between $15 and $18 per share based on previous deals in the sector, management turnover had hampered its ability to pursue a sale.
In April, the company announced the termination of Philip Pead as chairman of the board, which prompted the resignation of three directors and Chief Financial Officer Bill Davis.
Failure to successfully integrate Eclipsys has also resulted in the departure of Chief Technology Officer John Gomez, Chief Operating Officer Eileen McPartland and president of sales Jeff Surges.
Tullman, who has been CEO since 1997, recently embarked on a series of product updates, including of the company's flagship Sunrise clinician web portal, which offers real-time access to inpatient electronic health record software and other information such as patient charts and lab results.
(Editing by Matthew Lewis, Bernadette Baum and John Wallace)