LA Private

Cochlear’s $170 million Oticon acquisition faces hurdles from UK regulator

In a blow to Cochlear Limited (ASX:COH), the Australian hearing implant manufacturer, its planned acquisition of a Danish hearing implants business worth $170 million has been hit by the Competition and Markets Authority (CMA) in the United Kingdom.

The CMA announced that it had no competition concerns regarding Cochlear’s acquisition of Oticon Medical’s cochlear implant business, allowing the deal to proceed pending approval of the transfer agreements related to the business. However, the CMA blocked Cochlear from purchasing Oticon’s bone conduction implants business in the UK on competition grounds. The final acquisition price adjustment was not specified by Cochlear.

Cochlear had expected the acquisition of Oticon Medical’s cochlear implant business to contribute approximately $10 million in annual revenue. By acquiring this business, Cochlear aimed to expand its reach and provide implantable hearing solutions to a wider audience.

The company’s CEO and President, Dig Howitt, emphasised Cochlear’s commitment to supporting the existing base of around 20,000 cochlear implant recipients of Oticon Medical.

Despite the setback in acquiring the bone conduction implants business, Cochlear expressed its intention to offer its technology to customers who already have Oticon Medical’s Ponto acoustic implants. Cochlear’s Baha sound processors are already compatible with Oticon Medical’s Ponto implants, ensuring continued access to Cochlear’s technology for these customers.

While the cochlear implant business is expected to bolster Cochlear’s annual revenue, it currently operates at a loss. After the completion of the acquisition, Cochlear’s primary focus will be on developing a plan to restore sustainable profitability to the business. Integration costs, including the development of next-generation sound processors, are estimated to range between $30 million and $60 million. Cochlear’s long-term net profit margin target stands at 18 percent.

The acquisition’s closure is still subject to customary closing conditions and approval from competition authorities such as the Australian Competition and Consumer Commission and the European Commission.

Cochlear expects the transaction to be finalised by December 2023.

Notably, the company will not assume any liability arising from the voluntary field corrective action taken for Oticon Medical’s Neuro Zti cochlear implant, which was announced in October 2021.