Last week, CSC used its position as iSoft’s biggest customer to block a bid for the company from IBA Health. In response, iSoft announced that it was initiating legal proceedings against CSC for withholding its consent. iSoft also claimed that CSC had been weighing up a takeover bid of its own since last November and that just last month, CSC approached iSoft’s financing banks to explore whether it could purchase iSoft’s debt.
In a short statement, CSC said that its main goal remains successful delivery of the UK National Health Service IT upgrade, the controversial project on which it is working closely with iSoft. CSC continues to review its options in light of this objective, it said, and does not exclude the possibility of making an offer for iSoft.
CSC did reveal that, should any offer be forthcoming, it would be cash only. The offer on the table from IBA is all-share, with the firm offering 1.1 of its own shares for every iSoft share, valuing the whole company at about 140m pounds ($279m).
For its part, iSoft said that it is now in discussions with CSC aimed at enabling the IT services giant to take a greater role in the management of iSoft’s work on the [NHS IT program]. While iSoft said it would continue to seek CSC’s consent for a merger with IBA, it added that it had agreed to temporarily suspend its legal action against CSC.
Our View
The news that CSC is even considering a bid for iSoft comes as something of a surprise. The software developer has been in dire straits for some time now, beset by crippling contract delays and struggling with accounting irregularities. The dramatic drop in iSoft’s share price, from around 400 pence in January 2006 to its current level of under 50 pence, gives an indication as to the scale of these problems.
Were CSC to take on iSoft, it would also represent a fundamental change to the make-up of the much derided NHS IT upgrade project. Under the terms of the original contract, five regional clusters were divided between four prime contractors, each of which then selected an independent software subcontractor. One of the primary vendors, Accenture, has already walked away from the deal, leaving CSC in charge of three clusters, with iSoft as its partner. Taking control of iSoft would make CSC by far the most dominant force in the project, corrupting the original idea of a multi-source project utilizing the skills of a number of best-of-breed suppliers.