Australian health-tech giant Cochlear (ASX: COH) has overcome one regulatory hurdle for its proposed $170 million acquisition of loss-making Danish competitor Oticon Medical, but the catch is it will have to forego purchasing the target's bone conduction implants business.
The UK Competition and Markets Authority (CMA) has today published its final report on the proposal, concluding the deal can go ahead provided it does not include the bone conduction implants business which would "result in a substantial lessening of competition in the UK".
Bone conduction implants bypass damaged parts of the outer or middle ear, helping those with mixed hearing loss or single-sided deafness hear sounds more clearly.
The acquisition of the remainder of Oticon Medical’s cochlear implants (CI) business - the lower case 'cochlear' being a generic term in the industry since the Australian company's original technology's patent expired - is now permitted as far as UK authorities are concerned, although the transaction is still pending similar approvals in Australia and the European Union.
Upon completion, the takeover would allow Cochlear to provide support for Oticon Medical’s current base of around 20,000 cochlear implant recipients.
"Our strategy aims to improve awareness of and access to implantable hearing solutions so that more people get access to this intervention," says Cochlear’s CEO and president Dig Howitt.
"With every hearing implant, we begin a lifelong journey with our customers to maintain and improve their hearing.
"As a market leader, Cochlear will seek to ensure Oticon Medical’s cochlear implant recipients can continue to access a lifetime of hearing solutions."
Howitt says the group will work closely with Oticon's parent company Demant to ensure a seamless transition, with continued access to current Oticon Medical technology for customers in the coming years.
"We plan to develop and commercialise next generation sound processors and services that will enable customers to transition to and benefit from Cochlear’s technology platform over time," he says.
"We were disappointed to be blocked from acquiring the acoustics business. We will still be able to offer Cochlear’s technology to those customers into the future as our Baha sound processors are already compatible with Oticon Medical’s Ponto acoustic implants."
Integration costs, which include the development of compatible next generation sound processors, are yet to be determined and are currently estimated to be $30-60 million, but the new business is expected to add around $10 million to annual revenue and the priority will be to find out how Oticon can return to sustainable profitability as quickly as possible.
Cochlear continues to target a long-term net profit margin of 18 per cent.
COH shares were down 1.63 per cent at $232.43 in early trading.
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