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Widex postpones mega merger: Withdraws EU application

The hearing aid group Widex has retracted its application to the European Commission for merging with EQT-owned Sivantos. The company does not give any reasons but maintains its plans about merging.

Widex hovedkvarter

Danish hearing aid group Widex has withdrawn its application to the European Commission for merging with German Sivantos, former Siemens Hearing.

This is confirmed by the European Commission's competition authority.

"As is their right, the parties have withdrawn their application on October 30 whereby the Commission's investigation has been suspended," writes a spokesperson in an email to MedWatch.

The aim of the European Commission's competition regulations is to ensure that mergers avoid creating monopolies and distorting the natural competition in the markets.

Widex currently has a global market share of approximately 8 percent while Sivantos holds around 15 percent of the global market.

As is their right, the parties have withdrawn their application on October 30 whereby the Commission's investigation has been suspended

Spokesperson, the EU Commission

With a market value of approximately DKK 50 billion (USD 7.66 billion), an eventual merger between the companies could create a single entity exceeding the rival GN Hearing and gaining on Danish William Demant Holding and Swiss Sonova, the world's largest hearing aid group.

The Commission's spokesperson does not want to give details about Widex's reason for retracting the application. Figures show eight cases in 2018 of companies retracting their merger- or acquisition requests while the Commission processed their applications.

Widex announced the merger plans for the first time in May this year and according to the EU Commission, the company filed its application in the beginning of October.

"EQT and Widex announced their intentions of merging the activities of Widex and Sivantos in a joint venture on October 3, 2018, whereby the Commission initiated its investigation," writes the Commission.

According to the regulations, the Commission has 25 work days to process the application. However, this process was interrupted when Widex opted out on October 30.

Widex confirms but does not give details

Widex itself is quiet regarding the reason behind the retraction.

"I can confirm that we withdrew our application but cannot give further comments about the reason for our decision," says Andrew Arnold, Communications Manager in Widex.

Widex is a family-owned company and not obliged to inform the stock market or others about central events in the company. However, the firm informs that the decision to withdraw was made together with the merger partner.

"The withdrawal was a common decision. EQT has been part of the process, and we agreed on not communicating more than what I'm telling you now," says Arnold.

The Danish law firm Kromann-Reumert has advised Widex regarding the mega merger with Sivantos. In total, 50 Kromann-Reumert employees have been involved in anything from due diligence to negotiations, contracts and competition- and tax issues.

The team has been led by Jakob Hans Johansen and Christian Lundgren. According to MedWatch's sister media AdvokatWatch, they describe the Widex-Sivantos merger as "one of the absolute biggest and most complex operations in Denmark."

However, Lundgren declines to comment on the Widex case to MedWatch.

"On principle, we do not comment on our client and especially not ongoing cases. So, no comments from me," he says.

Wants to file new application

According to Arnold, Widex has not shelved the plans to merge with Sivantos, and the company intends to file a new application with the EU Commission later on.

"We have not stopped the project and we are still fully committed to close the transaction when we have all the necessary approvals. We are planning to file a new application with the Commission in the near future," says the communications manager.

He stresses that the merging process was always expected to take between six and 12 months.

"That was what we announced in May," he says.

We have not stopped the project and we are still fully committed to close the transaction when we have all the necessary approvals

Andrew Arnold, Communications Manager, Widex

But as late as October 19, both Sivantos and Widex announced that they expected an approval on this side of new years.

"(...) And it means that we can complete the merger on this side of January, too," said CEO in Widex, Jørgen Jensen, back then.

The EU Commission has processed your application for almost three weeks. What happened since you went from expecting a merger before Christmas to withdrawing your application?

"There is a long way between announcing a merger and obtaining the approval. Such an application can be processed at different paces. Sometimes it is fast, sometimes you encounter bumps in the road that slow you down," explains Arnold and adds:

"Of course, it would have been good to complete the merger before Christmas. It was what we hoped for. However, that turned out to be impossible. But as mentioned, we said 6-12 months, and we expect to comply with that timeframe."

According to Arnold, the companies are now expecting the EU Commission's merger approval "during the first half of 2019."

Analyst: Something must have gone wrong

Widex's decision surprises Morten Imsgard, Senior Analyst in Sydbank.

"I did not see that coming. My impression was that the merger would be completed before the end of the year. Neither Sivantos nor Widex have been reluctant to communicate this," he says to MedWatch.

The analyst stresses that he is no expert in mergers and therefore cannot say much about the eventual reasons.

"But something must have gone wrong. Maybe it is "just" a complicated process, but it could also be that the Commission signaled to Widex that it cannot approve a merger with Sivantos based on the current application," he speculates.

However, Imsgard does not see any immediate problems with merging the two companies. They are very different, but each have their strengths.

"Widex, for instance, has a good grip in the independent US distributors and the private European market. On the contrary, Sivantos has a strong positions in retailers like Costco and Amplifon, where Widex traditionally only has been marginally represented. This situation suggests that the authorities will be positive towards a merger," he explains.

History as scare example

However, the apparent troubles with the merger give rise to concern.

Especially due to the history of GN Hearing that serves as a scare example.

Back in 2008, the Danish company had to shelve its plans of being acquired by Swiss Sonova due to an injunction from the German Bundeskartellamt and a German appeal court.

"Previously, we have seen examples of mergers in this industry that failed miserably. Pausing the business in 2007 became a costly affair for GN because the company took for granted that it would merge with Sonova. But when the merger failed, GN Hearing suffered the consequences for years afterwards," explains Imsgard and estimates that the current retraction will create uncertainty about the future for all parties.

"Before the merger is set down in black and white, there is an uncertainty and a void where none of the companies want to be," says the analyst and stresses that the market will demand some sort of clarification.

"The longer it takes, the more uncertainty and speculations will spread. Are there any fundamental hurdles hindering the merger," asks Imsgard and adds: "It will be most desirable for both Widex and Sivantos to reacha conclusion as soon as possible and then, if the result is positive, dismiss eventual speculations."

English Edit: Ida Løjmand

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