The UK competition regulator has knocked back Cochlear’s full takeover of a major rival but will allow the Australian company to buy part of the business.
However, the local watchdog still has concerns about deal as it awaits more information from the companies.
Cochlear last year announced a plan to acquire Oticon Medical for $170 million from its Danish multinational parent company Demant, which is looking to exit its hearing implants business.
Cochlear had hoped to finalise the acquisition of the loss-making Oticon Medical by the end of 2022 but has faced challenges from regulators because the rival is one of only a few suppliers of non-surgical bone conduction devices.
The devices bypass parts of the ear that aren’t working to help users with advanced hearing loss.
On Thursday, UK’s Competition and Markets Authority (CMA) announced it had prohibited part of the deal in order to keep the Oticon Medical’s bone conduction solution business out of Cochlear’s control.
Oticon Medical will split out its bone conduction solutions as a separate business to be retained by its Danish parent Demant, which will continue running it as a competitor to Cochlear, according to the CMA.
The Australian giant will instead buy Oticon Medical’s remaining business focused on different devices, known as cochlear implants.
Cochlear chief executive Dig Howitt said he looked forward to acquiring the business – a transaction still subject to approval by local and EU regulators – but was “disappointed to be blocked from acquiring the acoustics business”.
The CMA found allowing the sale of the bone conduction solutions business to Cochlear would have left patients with “less choice, reduced quality, or less innovation” and potentially lead to higher costs for the NHS, the main buyer of bone conduction products in the UK.
Australia’s competition watchdog expressed similar concerns about lessened competition in the bone conduction devices market when the merger was proposed last year and is conducting its own investigation.
A final decision by the Australian Competition and Consumer Commission (ACCC) on whether to oppose the takeover has been pushed back after it had to suspend the investigation in January pending more information from the companies.
An ACCC spokesperson told InnovationAus.com it still holds “strong preliminary competition concerns regarding the proposed acquisition” and will continue to assess any restructures stemming from the UK solution.
“The ACCC’s strongest concerns relate to the markets for non-surgical bone conduction devices and surgical bone-anchored devices. These are also the products that the CMA is concerned about. In Australia, Cochlear and Oticon Medical are two of only three suppliers of these devices,” the spokesperson said.
The ACCC is also still considering whether the proposed acquisition of Oticon Medical’s remaining cochlear implants business is likely to amount to a substantial lessening of competition in Australia.
In a statement to shareholders, Cochlear said it will now pursue a transfer of Oticon Medical’s cochlear implant business at a zero headline purchase price.
But the deal now likely won’t be completed until the end of 2023, one year later than originally planned.
The New South Wales government last year gave a multi-million-dollar tax break and infrastructure subsidy to Cochlear to expand its 40-year-old Sydney manufacturing facilities.
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