Competition watchdog sniffs at Cochlear-Oticon acquisition

Competition watchdog sniffs at Cochlear-Oticon acquisition

Cochlear founder Professor Graeme Clark.

The management at Cochlear (ASX: COH) are hoping to add an extra 75,000 hearing implant recipients to their books worldwide through the $170 million acquisition of Oticon Medical, but Australia's competition watchdog may have other ideas.

The Australian Competition and Consumer Commission (ACCC) has today raised preliminary competition concerns about the proposed deal, noting the companies are two of a few globally that manufacture and supply devices used to treat more advanced hearing loss that typically cannot be managed by hearing aids.

In Australia, Cochlear and Oticon Medical are two of only three suppliers of non-surgical bone conduction and bone anchored devices, and two of only four suppliers of cochlear implants.

The ACCC is concerned the proposed acquisition would substantially lessen competition in already highly concentrated markets, which may lead to higher prices, reduced service levels and reduced innovation.

"Cochlear is by far the largest supplier of surgical bone anchored devices and cochlear implants in Australia. It is also an important supplier of non-surgical bone conduction devices,” ACCC chair Gina Cass Gottlieb said.

"Although Oticon Medical has a much smaller presence in Australia, we have significant concerns that the proposed acquisition will remove one of Cochlear’s few competitors in the supply of these three types of hearing devices in Australia.

"These devices are critically important in providing choice to consumers with hearing loss about the way they manage their hearing needs."

She said market feedback had indicated demand for these devices was likely to increase, so it was "important to ensure acquisitions in this market do not lead to higher prices or reduced innovation over time".

The ACCC said there would be a significant negative impact on Australian consumers if incentives to innovate are reduced with the removal of competition from Oticon Medical.

The watchdog is also considering the likelihood of other suppliers of non-surgical bone conduction devices, surgical bone anchored devices and cochlear implants entering or expanding in Australia.

"Market feedback indicates brand awareness is important to the clinicians and surgeons that recommend these devices to Australian patients. In addition to significant technical and regulatory barriers, new entrants would need to overcome clinicians’ reluctance to switch to new or unknown providers," Cass-Gottlieb said.

In the statement of issues, the ACCC has also outlined the issues it is considering that are relevant to the likely future without the acquisition. Oticon's Danish parent company Demant has publicly announced its intention to exit its hearing implants business.

In response, Cochlear said it did not believe the proposed acquisition would reduce competition, emphasising it would continue to work with the ACCC to address the matters raised as part of the public consultation process.

The ACCC has advised a provisional final decision date of 16 March 2023.

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