Foundation trusts will only be able to merge with, or take over, other trusts if they have a healthy financial risk rating, Monitor has said.

Foundation trusts will only be able to merge with, or take over, other trusts if they have a healthy financial risk rating, Monitor has said.

In a mergers guide for foundation trusts, due to be published today, the independent regulator says unless a foundation trust has a risk rating of three or more it will be not be allowed to merge.

Monitor chief operating officer Stephen Hay told HSJthat if trusts were rated one or two - the worst financial risk rating under the regulator's system - they would not be allowed to consider merger or takeovers.

'Under our compliance framework, if a foundation trust has been rated one or two they have their own pressing financial issues. Entering into a merger or acquisition would be a distraction,' said Mr Hay.

Last year five foundation trusts were given a rating of one or two and are therefore unable to consider merger under Monitor's new rules.

Mr Hay added that one of the biggest pitfalls to mergers was the risk that managers 'take their eye off the ball'.

'Mergers and acquisitions take up a lot of senior management and board time and that needs to be carefully managed so that they do not take their eye off the core business,' he said.

Mr Hay warned that there were other barriers to successful merger, including incompatible cultures between different trusts and the 'black hole-type risk' where trusts are unaware of what they had gained or lost from merging.

'It is crucial that trusts do the appropriate level of work to understand the entity that will be created to ensure it does not destabilise their own organisation'.

The guide advises trusts considering merger to buy in financial and legal support from the private sector to ensure that it runs smoothly.

Mr Hay said that he would expect trust management boards to 'go out and seek the appropriate professional advice to carry due diligence' before they considered merging.

NHS Confederation policy director Nigel Edwards warned, however, that the history of NHS mergers was not a 'happy one'.

'Merger diverts managers from running the business so you need to be very, very careful when going into this. There needs to be a really, really good business case to do it.

'There is a real danger that a merger or takeover is driven by the agenda to grow the organisation rather than to pursue the best interests of the patients,' he added.

One of the first trust acquisitions by a foundation trust could move a step closer next month when Heart of England foundation trust and Good Hope Hospital trust seek authorisation from health secretary Patricia Hewitt to complete their bid to become a single organisation.