IM this article to a friend!

June 2, 2004

INTERVIEW: Australia's Cochlear Ready For New US Rivalry

From: Yahoo News - USA - Jun 2, 2004

By Richard Noonan

SYDNEY (Dow Jones)--Australian ear implant maker Cochlear Ltd. (COH.AU) said Wednesday it won't be altering strategies even though analysts expect the company to face a much stronger competitor in the U.S. after the takeover of archrival Advanced Bionics.

On Tuesday, Boston Scientific Corp. (BSX) agreed to buy privately-held Advanced Bionics for US$740 million to expand its presence in the medical device market. The deal totals almost US$1 billion if future performance payments are included.

Sydney-based Cochlear has about two-thirds of the U.S. market for ear implants, while Advanced Bionics holds the remaining third.

Cochlear Chief Executive Chris Roberts described the deal as positive for the company, noting Boston Scientific may help expand the total market for ear implants.

"I don't think (the implications of the deal) are profound, overall we see it as positive," Roberts said in an interview with Dow Jones Newswires.

"I don't think it changes our fundamental strategy - no change to strategy," said Roberts, who started in the job four months ago.

"It would be my hope and my expectation" that Boston Scientific will grow the size of the overall ear implant market, Roberts added.

The takeover comes as Roberts battles to restore investor confidence in Cochlear after a series of profit warnings in the last 12 months amid resurgent rivalry with Advanced Bionics.

Shares in Cochlear dropped to their lowest point in four years in April after it said net profit would fall at least one third this fiscal year, mostly due to legal costs associated with a probe by the U.S. Department of Justice and a revamp of its research activities.

On Wednesday, the stock closed up A$1.26, or 6.3%, at A$21.22 as analysts lifted valuations on Cochlear following the higher-than-expected price paid for Advanced Bionics.

Analysts said the acquisition multiple of about eight times 2005 revenue on Advanced Bionics was about twice the size of the multiple Cochlear currently trades at.

"The price metrics suggest that over the long-term Cochlear is probably worth more than today's price," said Andrew Waddington, a fund manager at BT Financial Group.

"They paid a high multiple," he noted

Advanced Bionics Will Likely Be More Aggressive

Under its new owner, analysts and fund managers said Advanced Bionics will probably compete more aggressively for new technology and be given additional marketing and research muscle to get products to market.

"Advanced Bionics becomes a more formidable competitor," BT's Waddington said.

He expects Boston Scientific to be a rational and commercially-focused player that aims to expand the total market.

Even so, some analysts said Boston Scientific may not focus on growing its hearing implant business, noting the company's main focus was on expanding its business in the neurological device market.

Other market observers said the Advanced Bionics takeover may flush out a predator for Cochlear, which was once trading above A$52 a share in late 2002. Major medical device makers such as Medtronic Inc. (MDT) have been touted as possible buyers.

"It's a significant price being paid for the competitor, which says medical device companies are somewhat valuable in a consolidating market," said George Clapham, a fund manager at ABN Amro Asset Management.

Cochlear's Roberts, a former chief executive with sleep disorder device maker Resmed Inc. (RMD), was coy when asked whether his company was an acquisition target.

"People have said that for a while," he told Dow Jones Newswires.

"Perhaps we are, perhaps we're not," Roberts said.

Copyright © 2004Dow Jones & Company Inc. All rights reserved.
Copyright © 2004 Yahoo! Pte Ltd. All Rights Reserved.