Cochlear to acquire loss-making Oticon Medical for $170 million

Hearing implant maker Cochlear (ASX: COH) is sounding out global consolidation opportunities with a deal to acquire Danish competitor Oticon Medical for DKK850 million ($170 million), in a move that if successful would lift its patient base by 75,000 hearing implant recipients.

Cochlear agreed to acquire Oticon Medical after the company's parent Demant decided to exit its hearing implants business activities.

As part of the transaction, Cochlear has committed to providing ongoing support for Oticon Medical user's base with an offering that includes cochlear (an internationally out-of-patent term) and acoustic implants.

Cochlear CEO and president Dig Howitt says Oticon Medical - which has operations across Europe, North America, Australia, New Zealand and Morocco - is expected to add $75-80 million to annual revenue, although the business is currently running at a loss.

"The acquisition of Oticon Medical will provide us with greater scale and will enable us to increase our investments in R&D and market growth activities," Howitt says.

"While Cochlear is a market leader in implantable hearing, we are a small player in the hearing loss segment where hearing aids remain the primary treatment option.

"Our goal is to improve the penetration of implantable hearing solutions, building customer awareness and confidence, and offering more patients hearing solutions best suited to their individual needs."

With the acquisition expected to close in the second half of 2022 funded by existing cash reserves, Howitt says the post-closing priority will be to determine and implement a plan that returns the Oticon to profitability as quickly as possible.

"Integration costs, which include the development of compatible next generation sound processors, are yet to be determined and could range from $30-60 million. We continue to target a long-term net profit margin of 18 per cent," he says.

To comply with French labour law requirements, the proposed transaction will be subject to a mandatory consultation process with Oticon Medical’s Nice-based employee works council.

Completion of the transaction will be conditional on the satisfaction of customary closing conditions and receipt of competition approvals in jurisdictions where the transaction meets relevant notification thresholds.

Cochlear will not be assuming any liability for issues that may arise from the voluntary field corrective action for Oticon Medical's Neuro Zti cochlear implant announced in October 2021.

"Driven by our mission to innovate and deliver a lifetime of hearing outcomes, we will seek to ensure that Oticon Medical’s customers continue to be supported with a lifetime of hearing solutions," Howitt says.

"We will work closely with Demant to ensure a seamless transition, with continued access to current Oticon Medical technology for customers in the coming years.

"We will develop next generation sound processors and services that will enable customers to transition to and benefit from Cochlear’s technology platform over time."