The Cochlear Limited (ASX: COH) share price is edging lower today.
In morning trade, the hearing solutions company’s shares are down 1% to $234.
Why is the Cochlear share price falling?
This weakness follows the release of an update on the company’s proposed acquisition of Oticon Medical.
According to the release, the UK Competition and Markets Authority (CMA) has approved Cochlear’s acquisition of Oticon Medical, Demant’s hearing implants business.
In its report, the CMA concluded that Cochlear’s acquisition of Oticon Medical’s cochlear implants business (CI business) does not raise competition concerns and is permitted to proceed.
However, this does not include Oticon Medical’s bone conduction implants business. This may explain the weakness in the Cochlear share price today.
The release reveals that the CMA concluded that Cochlear’s acquisition would result in a substantial lessening of competition in the UK and has prohibited the acquisition of that part of the Oticon Medical business.
Commenting on the bone conduction implants business, Cochlear’s CEO & President, Dig Howitt, said
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.
Cochlear and Demant will now pursue a transfer of Oticon Medical’s CI business at a zero headline purchase price, the completion of which will ensure that Cochlear can provide ongoing support for Oticon Medical’s current base of around 20,000 cochlear implant recipients. Howitt adds:
We look forward to welcoming Oticon Medical’s cochlear implant customers to the Cochlear family. We will work closely with 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.
What impact will the business have?
Oticon Medical’s CI business is expected to add around $10 million to annual revenue. And while the business is currently loss-making, Cochlear is working on a plan that returns the business to sustainable profitability as quickly as possible.
In addition, integration costs, which include the development of compatible next generation sound processors, are yet to be determined. However, they are currently estimated to be $30 million to $60 million. Cochlear continues to target a long-term net profit margin of 18%.
It is worth noting that the transaction remains conditional on the satisfaction of customary closing conditions and receipt of other competition approvals from the Australian Competition and Consumer Commission and the European Commission.
If all goes to plan, the transaction is expected to close by December.
