McKesson announced that it will merge most of its technology business with Blackstone Group's Change Healthcare Holdings, a provider of software and analytics, network solutions and technology-enabled services.

The IT business never was a good marriage with McKesson's other business, according to Morningstar analyst Vishnu Leraj.

“We believe McKesson’s HCIT business never fit the firm’s overall strategy and was an impaired asset from the beginning, as a result of accounting fraud,” he said, noting that “management has not made any material investments within this business over the past several years, and to our understanding, the technology was two to three generations behind other major HCIT players.”

The combined entity will include substantially all of Change Healthcare’s business and the majority of McKesson Technology Solutions' (MTS), and with March 31, 2016, year-end pro forma combined total annual revenues of $3.4 billion.

"When combined with the forward-leaning Nashville-based, Change Healthcare's Neil de Crescenzo, a powerful and energizing force in providing much needed, innovative IT solutions to make health care more seamless is suddenly created," former Sen. Bill Frist, partner at private equity shop Cressey & Co., told The Tennessean. Calling McKesson CEO and Chairman John H. Hammergren a good friend, he added that he anticipated "bold things to happen," given that Hammergren "diligently built and led one of America's leading and far-reaching health care companies."

The new organization aims to bring together the complementary strengths of MTS and Change Healthcare to deliver a broad portfolio of solutions that will help lower health care costs, improve patient access and outcomes, and make it simpler for payers, providers, and consumers to manage the transition to value-based care.

"There are many paths we could have chosen, and I'm confident this was the right one," John Hammergren said during a conference call about the merger. “The new company will establish a more efficient suite of end-to-end payment and claims solutions, as well as clinical capabilities, while unlocking the value of our MTS businesses in a tax-efficient manner.”

The combination of these two entities comes at a transformational time in U.S. health care. “Together we will create significant value by bringing together complementary capabilities from both organizations,” stated Change's president and CEO Neil de Crescenzo.

The focus will be on cost savings, quality, and outcomes, by offering health plans and providers “a comprehensive suite of end-to-end financial and payment solutions and technologies.” Future customers will also be aided in the increasingly complex challenges in both administrative and clinical complexity “as they navigate the transition to value-based care,” the companies stressed.

“The innovative track records and forward-thinking experiences of both organizations create a truly unique opportunity for positive impact across the health care ecosystem,” said Neil P. Simpkins, senior managing director of Blackstone.

The deal has McKesson putting all of MTS into the new firm except for RelayHealth Pharmacy and the Enterprise Information Solutions (EIS) division, which it will keep.

McKesson has announced that it will seek “strategic alternatives” for the EIS division.

Change Healthcare will put the entirety of its businesses into the new company except for its pharmacy switch and prescription routing business, which will continue to be owned by current Change stockholders.

McKesson will own approximately 70 percent of the new company, with the rest going to Change stockholders, which include Blackstone and Hellman & Friedman.

Hammergren will become chairman and de Crescenzo will take the helm as CEO.

The new firm is anticipated to generate at least $150 million in annual synergies by year two post-deal.

The new company has commitments for $6.1 billion of funded debt. Of that amount, roughly $2.7 billion will go to pay off existing Change debt, $1.25 billion will be paid in cash to McKesson and $1.75 billion will be used for cash payments to Change stockholders. The rest, about $400 million, will go toward expenses incurred during the transaction.

The transaction is planned to be closed in the first half of calendar year 2017. An IPO is also anticipated shortly after the deal is finalized, depending on market conditions.