Why is CSC objecting to the take-over of iSoft by IBA - and do NHS trusts care?

Phil Codling, an analyst at Ovum comments, has some well-informed comments on the blocking by services supplier CSC of a proposed take-over of iSoft by Australian company IBA. Codling says:

“CSC is not saying exactly why it is unhappy with the bid from IBA. Its primary concern will be the prospects for effective delivery of iSoft’s Lorenzo software, the development of which is literally years behind schedule already.

“CSC is paid when it hits milestones on delivering within the National Programme for IT [NPfIT] – software delays can mean it doesn’t get paid or even faces penalties.

“So perhaps CSC is concerned that the amount of debt IBA would need to take on to finance the purchase would impact development budgets. Perhaps it is also worried about the Australian firm’s lack of experience in the UK market and the labyrinthine NHS specifically.”

Codling’s full comments – and statements by CSC and NHS Connecting for Health – are near the end of this blog entry.

For some IT managers in NHS trusts that rely on iSoft’s products, the protracted discussions over a possible take-over of iSoft prolong the uncertainty over the company’s future. Some NHS IT professionals would like iSoft to be split up and its specialist products sold to separate software development companies that, they hope, would keep the products alive by improving them.

But if the future of iSoft’s legacy products were assured, this could make trusts more reluctant to switch to products offered under the NPfIT.

All of which leaves CSC, the largest supplier to the NPfIT, carrying a huge amount of risk over the programme – a risk that rests to some degree on the future of iSoft’s NPfIT Care Records Service “Lorenzo” product which is years late.

CSC is not, in the main, a software development company so it’s unlikely it will want all of iSoft’s products. It would probably want a company to take over iSoft, but one that it is happy to work with, but if iSoft fails and CSC steps in to take over Lorenzo’s development, where would that leave iSoft’s legacy systems that are used widely in the NHS?

And the NPfIT was supposed to create certainty and cohesion in the supply of NHS IT.

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Phil Codling, an analyst at Ovum, comments on CSC’s objection to iSoft takeover offer:

“It seems nothing can go smoothly for iSoft. Having found a buyer, the beleaguered firm may now see the rescue takeover blocked because its most significant partner and channel to market,

“CSC, is raising objections. It’s not unusual for partners and even customers to raise concerns over proposed mergers, but the degree of CSC’s influence on iSoft’s future is extraordinary, thanks to its prime contractor role on the North Midlands and East (NMEPfIT) regional cluster. NMEPfIT is made up of three local service provider contracts on the National Programme for IT that have committed to iSoft software, and effectively counts for three fifths of the NPfIT footprint.”

“CSC is not saying exactly why it is unhappy with the bid from IBA. Its primary concern will be the prospects for effective delivery of iSoft’s Lorenzo software, the development of which is literally years behind schedule already. CSC is paid when it hits milestones on delivering within NPfIT – software delays can mean it doesn’t get paid or even faces penalties. So perhaps CSC is concerned that the amount of debt IBA would need to take on to finance the purchase would impact development budgets. Perhaps it is also worried about the Australian firm’s lack of experience in the UK market and the labyrinthine NHS specifically.”

“Whatever the motivation for the objection, CSC holds the deciding vote on iSoft’s future. And the US firm knows that in the end, should iSoft fail to find a workable takeover and face final collapse (its banking facilities run out in November), it could always step in and take over the development of the NPfIT applications itself (without formally acquiring iSoft as a whole, something it is unlikely to want to do).

“CSC already has around 100 staff working with the iSoft development team, and may conclude that exercising this option of direct control is the best way of finally getting Lorenzo finished and working at the NHS. Alternatively, the door may now be open to other parties (including McKesson and General Atlantic) that were previously interested in acquiring iSoft.”

A government agency, NHS Connecting for Health, which runs the NPfIT programme, has issued a statement on the media reporting of the proposed take-over of iSoft by IBA.

“IBA’s proposed takeover of iSoft

“There has been significant inaccurate speculation regarding the NHS’s position with regard to IBA’s proposed takeover of iSoft.

“NHS Connecting for Health’s position in respect of this transaction is that this is a matter for CSC. Please see the CSC web site for a current statement on this matter.

“NHS Connecting for Health has bought services from prime suppliers whose responsibility it is to choose their technology solution. We have had no approach from CSC in connection with this matter.

“If a supplier wishes to change the contract, they will need to negotiate and agree that change with us.

“When this has happened previously – as with BT and Fujitsu changing their subcontractor – we have protected the taxpayer by maintaining the original terms and conditions of the contract.”

CSC said in a statement:

“CSC has received a number of enquiries regarding CSC’s position concerning the proposed change in control of iSOFT.

“CSC is committed to the successful delivery of the NPfIT. CSC’s decision not to consent to the proposed change in control of iSOFT has been governed solely by what it considers is in the best interests of achieving this goal.

“CSC has engaged with iSOFT concerning their potential suitors since iSOFT started their process to find a buyer. Discussions and correspondence regarding IBA commenced in January, and we have continued in active dialogue with the company up to the present date. During this time,

“CSC has undertaken due diligence to assess the impact of the IBA transaction on NPfIT. Our ongoing discussions and correspondence with iSOFT clearly reflected CSC’s concerns and position, resulting in CSC confirming on 28th May, that it does not intend to consent to the IBA transaction.

“CSC remains totally committed to the success of NPfIT and remains supportive of iSOFT’s delivery. We currently have around 100 of our own staff fully engaged with iSOFT in this Programme and are planning for this number to increase.

“In parallel, CSC has engaged with iSOFT and its banks to explore ways to underpin the long term financial stability of iSOFT.”

Links:

CSC vetoes takeover of iSoft

Life-saving iSoft bid in doubt

IBA Health

iSoft statement

Full text of IBA offer for iSoft

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