UK Blocks Sale of Oticon Medical’s Bone-Anchored Implant Unit to Cochlear Ltd, but Approves Sale of Cochlear Implant Unit

The UK's Competition and Markets Authority (CMA) has determined that Oticon Medical can sell its Neuro System cochlear implant to Cochlear Ltd, but not its Ponto bone-anchored hearing systems (BAHS) business unit due to competitive concerns. Thus, any acquisition will necessitate Oticon Medical splitting up its cochlear implant and BAHS units. CMA's rationale was that, if Cochlear were to gain Oticon Medical's bone-conduction implant unit, it would then control over 90% of that market (with MED-EL being its only other substantial competitor).

The original deal announced in April 2022 entailed the complete divestment of Oticon Medical and its hearing-related products from its parent group, Denmark-based Demant A/S, to Cochlear Limited for DKK 850 million (US$120 million). Oticon Medical manufactures and develops the popular Ponto bone-anchored hearing system (BAHS) and much newer Neuro cochlear implant (CI) system; Australia-based Cochlear Ltd. is the global market leader in hearing implants with its Baha 6 and Osia 2 bone conduction implants and Nucleus cochlear implants. It's estimated Oticon Medical has a base of about 75,000 cochlear and acoustic implant users, while the Cochlear Nucleus system alone has about 475,000 users worldwide.

Britain’s CMA said that the original merger would have resulted in reduced competition in BAHS products with the elimination of a major competitor from the market, leaving Cochlear Limited holding a market share of more than 90%. It also said that the original deal would have left only one remaining BAHS competitor (Med-El) with little prospects for new players or market expansion by other players. In contrast, the cochlear implant market has several competitors, including Med-El and Advanced Bionics.

“The loss of competition in [BAHS] products that the Merger would bring could result in patients who need these hearing implants losing out with less choice, reduced quality, or less innovation, as well as [Britain’s National Health Service], the main buyer of [BAHS] products in the UK, potentially paying higher prices,” wrote CMA.

Demant and Cochlear's amended deal, pending regulatory approval

In light of the CMA’s decision, Demant and Cochlear Limited say they have agreed to amend the scope of the original transaction. The new deal will now involve Cochlear purchasing only Demant’s cochlear implants (CI) business, with the bone-anchored hearing systems business remaining with Oticon Medical. Demant says it remains committed to operating and further developing the Oticon Medical BAHS unit, but will continue to review its strategic options.

Commenting on the CMA’s decision, Demant President and CEO Søren Nielsen stated:

Following the final report from the UK competition authorities, we have concluded that there is now no viable path to obtain all necessary regulatory approvals for the full divestment of our Hearing Implants business to Cochlear. Consequently, we have agreed on an amended transaction, which only includes the CI business, and we are happy that a global leader in implantable solutions for hearing loss, Cochlear, remains committed to servicing Oticon Medical’s existing cochlear implant patients now and in the future.

“With the BAHS business no longer being part of the transaction with Cochlear, we remain fully committed to operating and further developing this business to continue serving all our BAHS customers and patients. The BAHS business is growing and delivering positive results, making for a solid starting point for a strategic review of future options.”

The new transaction is expected to close before the end of 2023, subject to regulatory approvals in several countries. Demant says the partially failed divestment means it will incur a write-down of assets of the cochlear implants business of DKK 600-800 million (USD$88-118 million).