“We must have the future of GN Resound in place by Christmas,” says GN Chairman Mogens Hugo after the German authorities prevented the sell-off of the company to Sonova (formerly Phonak).
After the DKK 15.5 billion sale of GN ReSound to Swiss company Sonova collapsed, GN’s supervisory board has set out to find an alternative solution. The situation must be resolved by Christmas.
“We’re looking into a number of possibilities together with our advisers. One option could be to sell GN ReSound to a new buyer, or we could divide GN into two independent listed companies: one for headsets and one for hearing instruments. Or it could be something completely different. We don’t want to say too much yet so we can build the strongest position possible for the process. What we decide will depend solely on what is best for GN’s shareholders,” says Mogens Hugo.
Have you been in touch with other prospective buyers of GN ReSound?
“After it became clear in April that there would be problems in Germany, we’ve received a few tentative inquiries, but we didn’t follow up on them because we had given Sonova exclusive rights. But we can do something about them now, and we intend to.”
Won’t it be impossible to get DKK 15.5 billion for GN ReSound from another buyer?
“It’s going to be very difficult, to say the least, because Sonova was the highest bidder in the auction we held last year and because the German authorities have made it impossible for other major hearing instrument manufacturers to buy GN ReSound. I don’t want to put a price tag on it yet, though. It’s time to get strategic now and figure out fast what we can do to wrap this up quickly and successfully.”
Will your decision have to be approved by the shareholders?
“It’s always good to ask the shareholders when you’re making major changes, but I’m not going to indicate a specific solution right now.”
We Did our Homework
The German Federal Cartel Office (Bundeskartellamt) said no to the deal because they felt that the deal would result in collective market dominance in the German hearing instrument market by the three largest players: Siemens, Sonova and Oticon. Together, they held 80% of the German market before the transaction, so with GN ReSound’s 8%, the deal in itself would not lead to a major change of the landscape. Still, GN ReSound and Sonova suggested to the authorities that the German market would be kept out of the deal, so the market shares would be unchanged, but the Bundeskartelamt rejected the offer.
GN and Phonak appealed the decision and asked for injunctive relief to close the transaction quickly while the appeal case was being heard. On August 8, the German appeal court said no to even consider the issue of injunctive relief and sent the case back to the Bundeskartelamt, which had already made its decision. That brought the case back to square one.
“I’m extremely disappointed by the outcome. We began the process because we believed we had a chance to create value for GN shareholders and because we saw a need for industry consolidation. GN is the only major player capable of making this consolidation happen: the others are controlled either by equity funds or by families wanting to retain ownership at almost any price. And we actually succeeded in both our objectives. Together with Sonova, we created the world’s largest corporation, and we got a fantastic price for GN ReSound: DKK 15.5 billion, most of which was going back to GN shareholders. So it was extremely disappointing that the Germans very unexpectedly tripped up the deal.”
You are being criticized for not investigating the legality of the transaction before signing the deal, aren’t you?
“I assure you that we most certainly did our homework. Both we and Sonova had received responses from specialists with international law firms saying that there would be no problems in Germany. During the process, we also consulted two large German law firms, who are equally amazed by the decision. No one could have predicted this. The German decision is wrong, and the data they’ve based their decision on is incorrect. So the ruling was made on the wrong basis, and we believe that it is contrary to international law for one country to prevent something that all other countries have accepted.”
So why not continue the appeal case in Germany?
“We’re looking into what it would cost and how long it would take. However, it wouldn’t be fair to put GN ReSound and its employees and GN shareholders through a two- or three-year-long legal battle. Even though GN ReSound is performing well, no company can take operating in a vacuum for that long.”
No Sales Bonus
Several senior managers in GN, including the former executive management, were given transaction bonuses last year. What will happen to that money?
“Those bonuses won’t be paid out if there’s no deal. It’s that simple. On the other hand, we gave retention bonuses to key employees of GN and GN ReSound to ensure that they would stay with us during this uncertain period. We will need to do more of that now.”
What about the extra remuneration to the Supervisory Board?
“We’ve never asked for a success fee. All we’ve asked for is to be paid for the time we spent last year on the entire strategic process, management changes and the selling process. We’re talking about several hundred hours we spent on the matter, and that’s a lot more than what you can normally expect from a supervisory board. Still, we’re not making any decision on that yet.”
The Executive Management and Supervisory Board were appointed to run a consumer electronics business (headset). Will the management be changed again?
“Our Executive Management consists of three people: CEO Toon Bouten and the appointed future CFO Anders Boyer-Søgaard will be focused on the headsets business, and Deputy CEO Jens Due Olsen is working to find a solution for GN ReSound. Jesper Mailind is in charge of GN ReSound and GN Otometrics. They all have lots of work to do, and their roles are clearly defined. That goes for the Supervisory Board, too. What will happen later will depend on the solution we find for GN ReSound.”