The U.K.’s Competition and Markets Authority is escalating its investigation into Cochlear’s planned acquisition of Demant subsidiary Oticon Medical, based on concerns that the merger could stanch competition in some areas of the hearing device market.
The agency announced its decision Tuesday, following a short grace period during which it had given Cochlear and Oticon the chance to “offer acceptable undertakings” that would assuage the anticompetition concerns. Suitable offerings never arrived, prompting the agency to recommend an “in-depth investigation” into the merger.
"These steps in the transaction process are in line with what we expected in this complex case, and it does not change our expectations of the final result or the timing of the divestment. We believe we can meet and respond to the concerns, and we will continue to address the matters raised," Demant said in a statement sent to Fierce Medtech.
"It is still our strategic decision to discontinue our hearing implants business area, as we believe it is in the best interest of both patients and customers, and we stand by our agreement to negotiate with Cochlear, the global leader in implantable solutions for hearing loss," the company added.
A spokesperson for Cochlear didn't offer a statement on the upgraded investigation, but pointed toward the company's Dec. 7 notice (PDF) on the results of the initial inquiry, in which CEO Dig Howitt said, "Driven by our mission to innovate and help more people to hear, Cochlear remains committed to the proposed acquisition so that Oticon Medical’s recipients will have access to our innovative technologies and ongoing support for a lifetime of hearing outcomes."
The acquisition was announced at the end of April. Under the terms of the deal, Australia-based Cochlear would acquire hearing implant maker Oticon from its parent company, the Danish device developer Demant. Cochlear offered 700 million Danish kroner in upfront cash and another 150 million kroner to be paid out within 18 months of the deal’s close for a total purchase price of 850 million kroner, or about $120 million.
At the time, Cochlear and Demant suggested the deal would close sometime in the second half of this year, pending the necessary regulatory approvals.
But that timeline is likely dashed now that the U.K.’s competition agency is taking a closer look at the merger. It first launched an inquiry into the deal—in what’s termed a phase 1 investigation—in October, when it gave “any interested party” two weeks to submit comments on whether the acquisition posed a threat to competition among hearing implant makers.
In mid-November, the agency served Demant an initial enforcement order (PDF), asking it to continue running Oticon as usual and keep Oticon’s business separate from Cochlear while the agency conducted its inquiry into the proposed combination.
By the beginning of this month, the antitrust authority had concluded that the merger could indeed threaten competition in at least one area of the hearing device market.
A Dec. 6 press release detailed the findings of the inquiry, including an analysis showing that combining the companies would give them a “90-100% share of the bone conduction solutions market in the U.K.” The agency noted its concerns that the loss of competition could not only slow the pace of innovation in bone conduction technology, it could also lead to a reduction in the quality of the companies’ devices and a jump in prices for patients that would go unchecked without any viable competitors.
However, since Oticon holds only a “very small position” in the cochlear implant segment, the agency concluded that the merger wouldn’t box out other competitors in that specific realm.
With Cochlear and Oticon declining to offer up any ameliorating concessions during the ensuing five-day response period, the agency issued its decision (PDF) Tuesday to ramp up the probe into a phase 2 investigation.
In the in-depth inquiry—which will stretch until June 5 of next year—the agency will first look more closely at whether the merger falls under its trust-busting jurisdiction and, if so, move forward in determining whether the deal would create a competition-killing monopoly in the U.K. If it comes to the same conclusion as it did in the phase 1 investigation, it could force the companies to take certain remedial actions before completing the acquisition or attempt to block the deal from going through at all.
Editor's note: This story was updated on Dec. 21 to add responses from Cochlear and Demant.