Cochlear’s acquisition of rival hits UK roadblock

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Joseph Brookes

Cochlear’s plan to buy up a Danish rival has hit another roadblock, with the UK competition regulator joining its Australian counterpart in opposing the deal, warning it would stymy competition and innovation, leading to higher process for customers.

A UK Competition and Markets Authority preliminary view against the acquisition released on Thursday follows a similar challenge from the Australian Competition and Consumer Commission (ACCC) in December, but doesn’t necessarily mean the deal won’t go through.

Cochlear had hoped to close the acquisition by the end of 2022 but will now wait on final decisions by regulators in the UK expected in June and an unclear timeline in Australia.

Cochlear last year announced a plan to acquire Oticon Medical for $170 million from its Danish multinational parent company, which is looking to exit its hearing implants business.

Oticon Medical is a rival of the Australian giant and one of only three suppliers of non-surgical bone conduction devices, which bypass parts of the ear that aren’t working to help users with advanced hearing loss.

With demand for the devices expected to increase, a more concentrated market has drawn serious concerns about its impact on competition and innovation from regulators.

“A reduction in innovation would significantly impact the timeliness, choice and/or quality of devices and technologies available to those with hearing loss in the future,” the ACCC said in December when it revealed its intention to oppose the deal.

The UK watchdog’s preliminary view released this week raises similar issues, flagging “worse outcomes for the patients who rely on these life-changing hearing implants and higher prices for the National Health Service”.

It said the deal would lead to a “substantial reduction” in in competition for passive bone conduction devices under what would become a single supplier.

“Cochlear is by far the largest of only two existing suppliers of a newer type of ‘Active’ BCS implant in the UK. Oticon Medical has a rival Active BCS product in development. Together, the merged businesses would dominate the supply of BCS products in the UK, with a share well above 90 per cent.”

Cochlear has said it will continue to support the 75,000 users of Oticon implants with access to the existing products for the “coming years”, claiming the deal would actually lead to a greater R&D investment by the company.

On Thursday, Cochlear chief executive Dig Howitt said Oticon parent company Demant had been clear about its intention to exit the market and had approached its rival about supporting existing customers.

“We believe only Cochlear can provide Oticon Medical recipients with that lifetime care, supported by our financial strength, scale, innovation capability and global reach,” Mr Howitt said.

The UK regulator is now accepting comments on its preliminary view ahead of a final report in June.

The ACCC took comment on its view late last year and had anticipated making its decision by March. But it had to suspend this timeline pending receipt of information from the parties.

An ACCC spokesperson on Friday could not provide an update due to the review being ongoing.

Earlier this month, ACCC chair Gina Cass-Gottlieb reiterated the watchdog’s call for an overhaul of Australian merger laws, including a  “formal clearance model”.

Currently ACCC opposition to a merger doesn’t stop it outright, with the regulator having to rely on enforceable undertakings that address completion concerns, or seek court orders to stop it.

Competition minister Andrew Leigh has been advocating for more effective regulations and interventions to encourage competition in a “zippier” economy.

“The Australian economy today needs a good dose of competition,” Mr Leigh, a former professor at ANU’s Research School of Economics, said in October.

“Compared with the 2000s, rates of startup business formation and job switching are down. Market concentration and markups are up. Productivity growth – exceptional in the 1990s – was sluggish in the 2010s.”

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