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March 5, 2005

Cochlear buys out rival

From: Melbourne Herald Sun - Australia - Mar 5, 2005

By Teresa Ooi

COCHLEAR has cemented its position as the world's biggest maker of bionic ear implants by buying the Sweden-based Entific Medical Systems for $195 million.

The acquisition further widens the gap from Cochlear's main rival in the US, the Boston Scientific Corp, which last month suffered a product-recall setback which drove more doctors to switch to Cochlear's implant instead. Chief executive Chris Roberts said yesterday: "Entific is an ideal acquisition for Cochlear. We are not buying a competitor but a complementary company.

"There are exciting synergies from the distribution and customer bases of both, which will enhance growth.

"There are possibilities for leveraging technology between both companies."

The acquisition would immediately lift Cochlear's cash earnings per share and add 5 per cent to cash EPS in 2006, he said. It would be funded through existing cash reserves of about $40 million and debt of $155 million.

Cochlear shares shot up by $1.09 to close at $30.88 - a 16-month high.

Dr Roberts said the company controlled about 60 per cent of the world's market in cochlear implants.

"Entific would complement our operations, giving us access to (its) Baha hearing-implant system to treat patients with conductive hearing loss as well as people who are deaf in one ear."

Analysts were positive about the acquisition, although some felt Cochlear had paid too much for Entific.

Merrill Lynch analyst Michael Carmody said: "The acquisition makes strategic sense, but Cochlear paid a significant premium to secure Entific. To make acceptable returns, Cochlear would have to work aggressively to improve underlying performance."

Entific is a well established company which has treated over 25,000 patients with its titanium, bone-anchored hearing implant. It had annual revenue growth of 35 per cent-plus over the past five years. While its future growth rate is forecast to be less, it is well ahead of Cochlear's long-term average growth rate.

Dr Roberts said Cochlear was sticking to its full-year net profit guidance of between $53million and $55million.

Cochlear's first-half net profit rose 10 per cent to $29.5million. The turnaround followed a period of profit downgrades and was particularly good for Dr Roberts, who took over about a year ago.

For the next few months, he said, the company would concentrate on integrating the two businesses.

"We are also focusing on rolling out our next generation of cochlear implants and developing other implants through our joint venture with Phonak, the Swiss-listed health group.

"Our hands are full. We don't need more on our plate," he said.

© Herald and Weekly Times