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Phonak acquisition makes it world number one

Phonak will hold 33% of the hearing aid market after the purchase of GN's ReSound group.

(Keystone)

Swiss hearing aid company Phonak is to buy the ReSound group from the Danish firm GN Store Nord for SFr3.3 billion ($2.63 billion).

The deal will create a "global powerhouse" in hearing healthcare, Phonak said in a statement on Monday.

But the news was not initially welcomed at the stock exchange in Zurich, with Phonak shares falling by 5.6 per cent to SFr74.65 in early trading on fears about the expensive price tag.

The share price bounced back at the end of the day, ending at SFr79.25 or 0.19 per cent higher than last Friday's close.

The combined group will have revenues of more than SFr1.5 billion and core earnings of SFr312 million francs, based on 2005-2006 results for the year ending March 31, 2006, the Stäfa-based company announced.

Following the acquisition of ReSound, which is a global manufacturer of digital hearing instruments, Phonak will leapfrog Siemens and William Demant Holding to become leader of the SFr3.1 billion market.

Phonak said the deal would lead to cost savings of around SFr100 million francs over three years, mainly in areas such as procurement, manufacturing, and administration.

Growth

"I don't see any reason why ReSound shouldn't be able to achieve benchmark industry growth rates and profit margins over the next two to three years," explained Valentin Chapero, Phonak's chief executive officer.

The group, which is aiming to grow by around ten per cent annually, said that its position as global hearing healthcare leader would help it to raise public awareness of the importance of the sense of hearing.

The deal will be financed through a SFr1.5 billion loan and a capital increase of around SFr1.8 billion.

"The price paid is quite rich," said Thomas Bernhardsgruetter, an analyst at CA Cheuvreux in Zurich told Bloomberg. "You gain scale - that is the key thing here - in production and sourcing."

In June Phonak announced strong results for 2005-2006, with an 80 per cent rise in full-year net profits and said it expected sales to outperform the market over the next year.

The company declared that it had "the strongest product portfolio of the hearing instrument industry" and had a full product pipeline.

The Swiss firm is hosting an international conference on hearing care for adults in Chicago, United States from November 13-15, 2006.

swissinfo with agencies

In brief

Phonak boss Andy Rihs established Switzerland's Phonak cycling team in 2000 and in so doing raised the profile of his hearing aid business worldwide.

In 2004 the team took part for the first time in the Tour de France, with the American star rider Tyler Hamilton.

In seven years the team were accused of 14 cases of doping. In 2004 three Phonak riders were accused of doping offences: Tyler Hamilton, Oscar Camenzind from Switzerland and Santiago Perez from Spain.

In 2006, after the winner of the Tour de France American Floyd Landis failed a drug test during the race, owner Andy Rihs pulled the plug on Switzerland's only professional cycling team.

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Key facts

Phonak's full-year results 2005-2006:
Sales: SFr867 million (+31%)
Net profit: SFr172 million (+80%)
Operating profit: SFr212 million (+68%)
Hearing aid market share: 17%

ReSound Group 2005 figures:
Sales: SFr700 million
EBITA (earnings before interest, taxes and amortisation): SFr99 million

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Phonak

The Phonak Group, which has its headquarters near Zurich, Switzerland, specialises in the design, development, production and distribution of technologically advanced hearing systems for adults and children.

The company is active in over 70 countries, with a strong presence in North America and Europe.

The hearing systems are manufactured in Switzerland and China, while research and development is coordinated between three centres in Switzerland and Canada.

The Phonak Group employs over 3,400 people worldwide and is listed on the Swiss stock exchange.

ReSound group is a manufacturer of digital hearing instruments and audiological diagnostics equipment. The company is based in Copenhagen with an extensive network of subsidiaries and dealers in 60 countries. ReSound Group's global organization comprises 3,400 employees.

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