Future of NHS supplier iSoft remains in doubt

IBA Healthcare is considering legal action of iSoft merger

IBA Healthcare could take legal action against Computer Sciences Corporation (CSC) after it announced it would block the takeover of NHS software supplier iSoft.

CSC had reportedly given conditional support to the takeover, but announced on Monday that it will oppose the deal. It did not provide any reasons for the opposition.

Without the cash injection provided by Australian software developer IBA, iSoft could be forced into administration when debt repayments begin in November.

IBA agreed a deal with iSoft two weeks ago after months of negotiation that included discussions with the government and CSC over how it would affect the NHS.

iSoft is contracted by CSC to provide its Lorenzo hospital administration software as part of the NHS National Programme for NHS IT (NPfIT). CSC guarantees a certain amount of business under the deal, but has a step-in clause that allows it to take over development of Lorenzo if iSoft is not performing adequately.

It is 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, says Ovum analyst Phil Codling.

‘CSC’s primary concern will be the prospects for effective delivery of iSoft's Lorenzo software, the development of which is years behind schedule already,’ he said.

‘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.’

CSC holds the deciding vote on iSoft’s future and should iSoft fail to find a workable takeover and face collapse, CSC could step in and take over the development of the NPfIT applications itself, without formally acquiring iSoft, says Codling.

‘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,’ he said.

IBA says it wants to determine why CSC is blocking the deal and address any concerns about the proposed merger before beginning legal action.