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IBM has finalized a $1.6 billion outsourcing and consulting deal with NiSource Inc. in which it will take over many of the energy companys business support tasks.
Under the terms of the 10-year deal, IBM, of Armonk, N.Y., will operate business processes in such areas as human resources, accounting, procurement, customer service, IT and billing. In addition, there will be other consulting services involved, according to IBM.
As part of the agreement, 572 of NiSources workers will become IBM employees, with another 445 jobs being cut. The move is expected to save NiSource and 15 of its subsidiaries $530 million in operating and capital costs.
NiSource, based in Merrillville, Ind., and its subsidiaries deliver natural gas and electrical services to 3.7 million customers from New England to the Gulf of Mexico region. The company generated $2.7 billion in revenue during the first three months of this year.
Company officials said the IBM deal is part of a larger plan to help NiSource focus on the energy part of the business and let IBM take over many of the administrative tasks.
“This agreement will enable NiSource to transform its business to further focus on core strengths of providing safe, reliable utility and pipeline services to our customers,” NiSource Chairman and CEO Gary Neale said in a prepared statement. “In addition, this agreement will enable us to access new technology and service capabilities for our company and state-of-the-art service for our customers, and re-deploy capital toward growth opportunities.”
The deal has been in the works for months, and NiSource employees were being told as early as May to submit resumes with IBM in preparation. IBM will take over the operations July 1.
NiSource will have to pay some money to get the deal done. The company will have to pay $35 million in one-time severance costs and another $35 million for transistion costs.
In addition, NiSource expects to pay about $50 million over the 10 years in governance costs, and another $21 million one-time pension-related expense for those employees who are laid off or hired by IBM.