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RESTRICTED - POLICY & COMMERCIAL [~
@ cc Mr Scholar
Mr Macdonald
PS/PRESIDENT Mr Baker CGBP.
PS/MR MCCARTNEY Mr Macintyre (II
Mr Fraser IB,
From: Mr Wheelet IMT
Mr Sklaréff COM
DAVID SIBBICK Mrs Britton PORT
DIRECTOR POSTS Nol ot. Dr Hgpkins CII
BPR; Mr Whitehead CGBPS
i “tT y} Anderson CGBPS
a a Corry SpAdv
21 October 1998 Mr Wegg Prosser SpAdv
BA/POCL HORIZON PROJECT: UPDATE 21 0CTOBER 1998
There have been several related developments today:
2 First, ICL have written to the Chief Secretary with their substantive response
to his letter of 15 October. The letter and its supporting annexes run to 9 pages, but
in sum the response fai i i
namely a specific offer to help bridge the gap of some £250 million between ICL
and the public sector side. Instead, it sets out ICL’s view that a satisfactory basis for
taking the project forward could be found through some form of joint venture with
POCL to exploit fully the commercial potential of the Horizon system. The letter
suggests that ICL should take a minority stake in POCL, and further that a third
equity holder, with a record of success in the retail distribution of financial services,
might also be included.
3. Second, Alastair Macdonald saw Keith Todd and George Hall of ICL at their
request this morning. They repeated with some embellishment the burden of their
letter to the Chief Secretary, insisting that the POCL business case is ridiculously
pessimistic, and that with properly resourced, focused, professional and motivated
marketing, the undoubted virtuosity of Horizon could be turned into a money
spinner. What ICL needed was the confidence of a structure which integrated them
fully into all key aspects - but particularly decision making - of the marketing of
Horizon’s capabilities. ICL were in urgent discussions with the Post Office at
Board level about this.
4. Mr Macdonald noted the points which had been raised (there was some
further elaboration of several, particularly on the conduct of the negotiations); and
stressed that the position of the public sector side remained as set out in the Chief
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Decctscy's recent letters to Keith Todd. He welcomed the discussions between ICL
and the Post Office, but counselled against attempts to construct elaborate structures
for joint ventures based on equity stakes. These might well not find favour with
Ministers, and would consume time better devoted to simpler, practical solutions for
working together.
5. Third, in the meantime we received from the Post Office a copy of a proposal
for restructuring the contract to give ICL a substantial “up front” payment in order
to assist with the project’s cash flow problems over the next few months, in return
for lower payments later in the life of the project. This proposal has not been
shown or even hinted at to ICL, and the consensus view thus far has been that it
should not be unless and until ICL have shown some willingness to move from their
present rigid negotiating position. However, Richard Close, the Post Office Finance
Director, and I are to meet Harry Bush and his Treasury team at 9.15 am tomorrow
(Thursday) to discuss how the proposal might be funded. If this can be
satisfactorily resolved, the time may now be right for previewing it with ICL,
making entirely clear that such an offer would be placed on the table only after
ICL had themselves made a significant first move.
6. I will report further after tomorrow’s series of meetings.
DAVID SIBBICK
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