The deal, inked last June, was supposed to see CSC providing support for desktops, servers, websites and networks for 10 years, but Sears told CSC last week it was canceling the contract for cause.
But CSC is convinced that Sears is only canceling the deal because it is merging with rival retailer K-Mart Holding and wants to consolidate its contracts without having to pay early termination fees.
[CSC] is convinced the termination for cause is invalid, contrived to avoid or reduce termination fees of tens of millions of dollars, the company said in a statement filed with the US Securities and Exchange Commission on Monday.According to Sears, CSC tried to get a preliminary injunction stopping Sears terminating for cause, and tried to get an emergency hearing in arbitration to get an order to the same effect, but was unsuccessful on both counts.
CSC warned in its SEC filing that its earnings could take a hit if it is unable to recover the money it has so far invested in the Sears account. CSC paid Sears $19m last June for certain assets necessary to fulfill the contract.
While CSC had $14.26bn revenue last year, a lot of these types of big services contracts have their costs front-loaded, as companies invest in transitioning.
As we reported last June, the majority of Sears’ 200 IT staff was to immediately transfer to CSC’s employ. It was CSC’s largest-ever contract in the retail sector at that point.
The exact nature of the cause for the deal’s termination has not been disclosed. A termination so early in the relationship could point to transition difficulties, or to K-Mart’s desire to cut costs post-merger.
