the Cochlear Limited (ASX:COH) the stock price is trading lower on Thursday morning.

As of this writing, shares of the hearing solutions company are down 1% at $228.92.

Why is the Cochlear stock price falling?

Investors sold Cochlear’s share price on Thursday after an acquisition announcement was released after the market closed yesterday.

According to the statement, Cochlear has agreed to pay A$170 million to acquire cochlear implants and bone conduction hearing solution provider Oticon Medical from Danish hearing care company Demant. This follows Demant’s decision to exit its business activities related to hearing implants.

As part of the transaction, Cochlear has agreed to provide ongoing support to Oticon Medical’s base of over 75,000 hearing implant recipients, which includes cochlear and acoustic implants.

However, the deal still has a few closing conditions to meet before it closes. These include customary closing conditions and the receipt of competition approvals in jurisdictions where the transaction meets the relevant notification thresholds.

If all goes as planned, the acquisition will be funded from its existing cash balances and is expected to close in the second half of 2022.

What was the reaction?

According to a note from Goldman Sachs, its analysts seem to believe the deal could be good. And while it won’t make much of a difference to its market share, the broker points out that it offers greater scale and supports industry pricing.

Goldman commented:[G]Greater scale would allow COH to reinvest more in product development (as it always has), which would further strengthen the company’s position in the market. The acquisition of Oticon would also likely support industry pricing, as Oticon was previously seen as one of the market challengers with prices below the industry average.

Management commentary

The market doesn’t seem as convinced based on Cochlear’s share price performance. Especially since the acquired company is currently operating at a loss.

Nonetheless, Cochlear CEO and Chairman Dig Howitt is very positive about the deal. He said:

“The acquisition of Oticon Medical will give us greater scale and enable us to increase our investments in R&D and market growth activities. While Cochlear is a market leader in implantable hearing, we are a small player in the hearing loss segment where hearing aids remain the primary treatment option.

Our goal is to improve the penetration of implantable hearing solutions, build customer awareness and confidence, and provide more patients with the hearing solutions best suited to their individual needs.

Mr. Howitt also referred to Oticon Medical’s lack of profit. He added:

“Oticon Medical is expected to add AUD 75-80 million to its annual turnover. The company is currently loss-making. Our priority after closing the transaction will be to determine and implement a plan that will return the business to profitability as quickly as possible. Integration costs, which include the development of compatible next-generation sound processors, are yet to be determined and could range from $30 million to $60 million. We continue to target a long-term net profit margin of 18%. »