Is CSC's take-over of iSoft good for iSoft users?

CSC plans to buy NHS IT supplier iSOFT. It's unclear whether CSC's interest in the company is mainly because of the "Lorenzo" electronic health records system, or because of the revenues from existing implementations in hospitals of iSoft's...

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CSC plans to buy NHS IT supplier iSOFT. It's unclear whether CSC's interest in the company is mainly because of the "Lorenzo" electronic health records system, or because of the revenues from existing implementations in hospitals of iSoft's legacy systems.

The deal seems to be good news for iSoft's UK users, as the future of the supplier is now secure. But will users face large increases in the support and maintenance costs of their legacy iSoft patient administration systems?

Long before CSC indicated its intention to acquire iSoft, it made large investments in Lorenzo as the chosen NPfIT system for NHS trusts in the North Midlands and East of England. But Lorenzo's development is several years behind schedule and CSC has been offering the NHS rival products.

CSC will want to recoup its investments in Lorenzo, in part from charges to existing UK users for running iSoft's legacy systems. Earlier this year there were signs of some of UK's iSoft's users facing large increases in maintenance and support fees. 
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iSoft has a strong customer base in the UK and some Trust IT directors prefer its legacy systems to the products offered under the National Programme for IT [NPfIT]. These trusts are among those that have had iSoft;s patient administration systems for more than 10 years:

- Great Ormond Street Hospital for Children NHS Trust
- Kings College Hospital NHS  Foundation Trust
- Guys and St Thomas' NHS Foundation Trust
- Epsom and St Helier NHS Trust
- University Hospital Lewisham NHS Trust
- Salisbury NHS Foundation Trust
- Plymouth Hospitals NHS Trust

Earlier this year Colin Sweeney, Director of IT at King's College, said the seven trusts (listed above) are planning to run iSoft systems for the foreseeable future. “From our point of view, the clinical functionality offered under the national programme does not match what we already have from iSoft"

This is a summary of iSoft's announcement today:

- iSoft has announced that it has entered into a "Scheme Implementation Agreement" with CSC for it to acquire all the ordinary issued shares in iSoft.

- Under the proposed acquisition, iSoft shareholders will receive A$0.17 in cash per share, which is about three times the last closing price for iSoft shares before they were suspended on the Australian Stock Exchange last week.

- Immediately following completion, it is expected that iSoft's senior banking facilities and convertible notes will be repaid in full.CSC is listed on the New York Stock Exchange with a market capitalisation of approximately US$7.6 billion. 

- The proposal from CSC is considered by the board of iSoft to offer the "best outcome for all stakeholders taking into account the proposed price and expected timing of completion".

- iSoft chairman Bob Ellis said: “The proposed acquisition enables shareholders to realise cash for their iSoft shares at a significant premium to recent trading levels. It provides for the repayment of all iSoft senior banking facilities and convertible notes. In addition, CSC’s global scale and financial strength can be expected to lead to improvements in iSoft's ability to deliver services to customers and provide employees with additional opportunities.”

- Michael Laphen, CSC Chairman, President and Chief Executive Officer, said: “The combination of these companies will further establish CSC as an innovative leader in global healthcare IT. Through our combined experience in global healthcare delivery, complementary world-class healthcare software solutions, and enhanced capabilities in system integration, outsourcing and process management, we are forming a compelling lifecycle of services to better serve our global clients and improve patient care.”

- The proposed acquisition of iSoft shares will be implemented via a "scheme of arrangement" which is subject to a number of conditions including iSoft shareholder approval and regulatory approvals, including approval by the Foreign Investment Review Board and EU merger clearance. The scheme implementation agreement contains provisions dealing with conditions precedent (see clause 3), a break fee (see clause 9) and exclusivity arrangements (see clause 13).

- iSoft's major shareholder, Oceania Capital Partners Limited holds 24.5% of the ordinary issued shares of isoft. The iSoft board understands that OCP will shortly make a statement in relation to the proposal - but it is expected to support the plans. .

The Scheme Implementation Agreement is here.

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"So, is buying troubled iSOFT a last resort for CSC as it works to keep its NPfIT contracts, which rely on iSOFT’s products, on track? Or is it an opportunistic move that CSC hopes will strengthen its healthcare IT offering, not just in the UK but in other international markets where it holds ambitions? The truth may well be somewhere in between."


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