August 23, 2007
STAFA, Switzerland — As reported in the top story of last week’s The Insider, Sonova Holding AG (formerly Phonak Holding AG) has now formally announced that it has terminated the transaction to acquire GN’s ReSound group, and also announced details for a share buy-back program of up to 10% of its share capital over the next 3 years.

On October 2, 2006, GN signed an agreement to sell GN ReSound to Sonova for a total consideration of DKK 15.5 billion ($2.65 billion) in cash on a debt and cash free basis. The transaction was subject to approval by the competition authorities in a number of countries. In April 2007, the German Federal Cartel Office (FCO, or Bundeskartellamt) decided to prohibit the transaction, claiming that this would result in “collective market dominance” in the German hearing instrument market, prompting GN and Sonova to appeal the decision. Two weeks ago (August 8), the appeal court (Oberlandesgericht) in Dusseldorf, Germany, rendered its decision that the court did not have the power to grant injunctive relief in merger prohibition cases, since only the FCO can authorize parties to implement a merger before it has been cleared.

Citing the fact that the appeal process can take many months or even years to resolve—and that either party can elect to terminate the transaction if the conditions of closing were not met by August 15—Sonova announced that it would pull out of the proposed acquisition.

Although the deal has been terminated, GN says that it will continue to pursue the main FCO appeal unilaterally. The ruling, if it stands, potentially closes the door for several future mergers and acquisitions for major hearing industry manufacturers in general. GN reports that it will in parallel pursue all possible strategic options including but not limited to an alternative transaction or a possible listing of GN in two separate entities.

Had the deal gone through, it would have made the combined Phonak-GN entity the largest hearing healthcare group in the world, followed closely by the Siemens Hearing Instruments group of companies.

Sonova’s board resolved to implement a share buy-back program to return its cash not used for operations and funds generated from future free cash flow to shareholders. The company has reported to the business press that, due to its solid finances, the action will not impede its financial flexibility for further internal or external expansion.

Likewise, GN ReSound reported good financial results as a consequence of several successful product launches—including its new Azure product line—and the effect of the restructuring measures implemented last year. Revenue increased to DKK 842 million ($152 million) from DKK 812 million ($147 million) in Q2 2006, with 8% organic growth in hearing instruments.

Source: HR Insider