Wednesday, 18 January 2012

CSC – yet another lawsuit, yet another flagship project mess and yet another reason why the company won’t be acquired any time soon

CSC was hit with another lawsuit on January 16.

The plaintiff alleges that the directors breached their fiduciary duty by failing to disclose alleged accounting and financial irregularities in the Managed Services Sector segment, primarily in the Nordic region, and Computer Sciences’ performance under its U.K. National Health Service agreement and alleged failure to maintain effective internal controls.  Full details on:
http://www.pressreleasepoint.com/computer-sciences-corporation-investor-files-lawsuit-against-directors

And it has another failing healthcare megaproject
CSC has also been slammed for delays and overruns in a major Medicaid project in North Carolina.
As disclosed by “The Point” on January 15  a North Carolina state government audit estimates that cost overruns could reach $320 million and the project is significantly behind schedule. It also makes the point that some of these delays and cost overruns should have been foreseeable with a little more digging. In fact, they were foreseen.

Amazingly, CSC uses this failing project as a public reference on its website, saying that

“For more than 30 years, CSC has been a trusted partner to state Medicaid agencies. North Carolina is the latest to count on us for its Medicaid Management Information System (MMIS)”.                                                                     (source : http://www.csc.com/public_sector/ds/11254-mmis )

Is CSC management even aware of the reality of what is happening on the project or is it in denial again?
And why we think CSC won’t be acquired any time soon
There are simply too many risks to CSC’s business which cannot be quantified right now.  
How much will the Class Action lawsuits cost? What will be the outcome of the SEC investigations into the accounting irregularities?
What will be the outcome of the NHS IT project situation and how much will that cost CSC? What about the other distressed major projects like the North Carolina Medicaid?  What might they cost? Given these problems in the healthcare industry, can CSC justify the carrying value of the  iSoft goodwill on the balance sheet?  Are there any more bad projects under the surface? (Danish Customs and Tax??). CSC has withdrawn its earnings guidance,  so there may be more bad surprises to come in the financial results.    

The potential magnitude of all these risks will likely dissuade anybody interested in acquiring CSC, or at least cause them to wait for some more clarity.

posted by Littlejohn

No comments: