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Cochlear’s (ASX: COH) $170 million takeover of Danish competitor Oticon Medical has been knocked back by the UK Competition and Markets Authority (CMA), which voiced concerns the deal may substantially lessen competition between firms offering bone conduction solutions.
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.
In an announcement after the market closed yesterday, Cochlear said it disagreed with the conclusions drawn by the CMA and believed the proposed deal would benefit the vast majority of people who are never given the opportunity to receive the solution.
According to Cochlear, less than two per cent of the people who could benefit from bone conduction systems receive one due to limited awareness and the prevalence of alternative therapies, including hearing aids.
Cochlear CEO Dig Howitt also noted that healthcare giant Demant, the owner of Oticon Medical, already planned to exit the implant market and was in search of a bidder to take control of the loss-making business.
“Demant has been clear about its intent to exit the hearing implants business and approached Cochlear to provide the support required by its recipients,” Howitt said.
“Our interest in acquiring Oticon Medical is driven by our concern for the 75,000 Oticon Medical implant recipients who may miss out on the lifetime of support needed to maintain and improve their hearing.
“We believe only Cochlear can provide Oticon Medical recipients with that lifetime care, supported by our financial strength, scale, innovation capability and global reach.”
However, the UK competition watchdog believes the proposed acquisition could lead to a jump in prices and risk a decline in quality and choice for recipients who need hearing implants.
For the takeover to be successful, it requires approval from the CMA, as well as the Australian Competition and Consumer Commission (ACCC) and the European Commission.
Four months ago, the ACCC 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.
"Market feedback indicates brand awareness is important to the clinicians and surgeons that recommend these devices to Australian patients,” ACCC chair Gina Cass Gottlieb said in December.
“In addition to significant technical and regulatory barriers, new entrants would need to overcome clinicians’ reluctance to switch to new or unknown providers.”
Cochlear and Demant said they will continue to engage constructively with the CMA in order to address the concerns raised in the provisional findings.
The CMA’s final report is expected by 5 June 2023.
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