iSoft announces legal proceedings against CSC

UK Health software supplier iSoft has announced that it will launch legal proceedings against its key NHS National programme for IT (NPfIT) programme customer Computer Sciences Corporation (CSC) based on the company’s decision to withhold its consent from iSoft’s planned merger with Australia’s IBA Health.

The announcement raises the spectre of the one of the two main software sub-contractors to the £12.4bn NHS IT programme in legal dispute against its main customer and prime contractor, increasing the risks to the development of the long delayed Lorenzo clinical software the two firms are developing together.

Through NPfIT local service provider CSC, iSoft is responsible for delivering new software to 60% of the English NHS. To further complicate matters CSC already has ‘step in rights’ on the management of iSoft NHS IT contract in certain circumstances.

In an out of hours statement issued on Friday evening iSoft said that it had taken legal advice which indicated it had grounds to begin court proceedings. The company says it has received no satisfactory explanation why CSC having indicated conditional consent in a 20 April letter changed said it did not intend to give consent in a 28 May letter.

"The iSoft board does not believe that CSC has given any satisfactory explanation as to why its intentions have changed since its letter of 20 April 2007. The contract requires CSC not to unreasonably withhold or delay its consent."

The iSoft statement goes on to say: "iSoft is also concerned that CSC’s wider interests may be influencing its conduct in this matter".

It claims that CSC has been considering a possible offer for iSoft since November 2006 "when it was given access to a data room containing information on iSoft for this purpose". The statement also claims that CSC has been considering a possible offer structure for iSoft that could involve the Californian-based private equity fund Gores. It adds that no offer has yet been made.

In addition the iSoft statement further claims that in the week beginning 21 May, "CSC approached iSoft’s financing banks to explore purchasing iSoft’s debts. This approach was made without the knowledge of iSoft and CSC has not, in iSoft’s view, provided a satisfactory explanation for this approach."

The statement says: "Against this background, it is with regret that the board of iSoft believes that it has no alternative but to now initiate proceedings against CSC to protect the company and its shareholder’s position."

Isoft says that despite its decision to begin legal proceedings against CSC it intends to "continue to work constructively with CSC to deliver the NPfIT contract, which remains an absolute priority for iSoft." 

CSC said it was unable to comment due to legal reasons and referred EHI back to its statement of 30 May.

IBA Health made its £140m takeover offer for iSoft on 16 May.  The initial offer is due to lapse within 21 days, 8 June. 

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iSoft and IBA consider legal action on CSC veto