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The GN ReSound Merger: One Year After the Rumors

Redwood City, California -- At the American Academy of Audiology Meeting held last year in Miami, one of the big rumors that was circulating around the convention floor was the possible purchase of ReSound Corporation by GN Danavox, Inc. Within a month of the convention, these rumors were confirmed with a public announcement by GN Great Nordic (the parent company of GN Danavox, Inc.) that a tender offer had been submitted to ReSound shareholders.

In considering this acquisition, GN Great Nordic realized that, even though GN Danavox enjoyed a major presence in the European and eastern markets, it did not have the financial capacity or global industry presence necessary to achieve critical strategic goals necessary to be a leading player into the future. So, GN Great Nordic was faced with a decision. Either get out of the hearing industry all together, or invest in the industry through acquisition, and acquire the critical mass necessary to support these strategic goals. They chose the latter. And, in July of 1999, GN Great Nordic concluded a forward subsidiary aquisition of ReSound Corporation for $180M. The resulting new company was named GN ReSound. The combined market shares of ReSound Corporation and GN Danavox yielded a new company with sufficient revenue generating capacity to now realistically accomplish the strategic goals earlier defined.

The choice of ReSound Corporation as the target was based on several factors. First, ReSound Corporation represented a relatively substantial share of the market. They had a strong reputation for providing the industry with advanced technology over the last decade, and a loyal base of dispensers who continued to use ReSound's technology. Second, GN Danavox and ReSound had earlier collaborated on a large R&D project that yielded the AL313 software-based digital signal processing chip, a technology that is at the heart of both the ReSound Digital 5000 digital product line, as well as the Danavox Danalogic digital product line. The collaboration exposed a fair number of resource synergies in the R&D infrastructure of both companies; synergies that would continue to be useful in future R&D endeavors. Third, GN Danavox over the prior two years had developed a solid customer support infrastructure that was yielding exemplary customer support accolades by the market place, and was strongly supporting Danavox's digital product launch. For these reasons, ReSound became an obvious acquisition target.

As a result of the merger, GN ReSound now has the critical mass necessary to support the cash intensive R&D projects necessary to be a top competitor in the marketplace. The combined organizational strengths, not only of R&D, but of management, financial resources and beyond, have positioned the new company as a front runner in the industry. GN ReSound has a strong market share presence in all major markets throughout the world; something that neither company could claim prior to the acquisition. And, GN ReSound has sole access to the AL313 DSP chip, making its technology a solid strategic plus into the future.

Post Merger Activities: The Key To Future Success:

As Jesper Mailind, President and CEO of GN ReSound so clearly pointed out in an interview conducted at the ADA Convention in Bermuda last fall, 'Sometimes, executives get so caught up in all the activity involved in the acquisition itself (contracts, bankers, lawyers, negotiations, etc.) that they think the celebration should begin once the acquisition has been finalized. But, actually, that is where the real work now begins.'

For any acquisition to be successful, it is necessary for the surviving organization's managers to administrate their new resources well. No market share size is guaranteed. And, brand loyalties can have both positive and negative effects on post-merger relationships. That is why, post-merger efforts are so critical in establishing a solid position for the new company and its future.

Within GN ReSound, the global management team keyed in on several critical integration projects as soon as the merger was finalized. These included identifying the executive management team for the new organization, as well as the management teams that would head up each of the subsidiary groups that would be representing the company in the future. It was essential to establish the new corporate identity and brand quickly, so that the new organization would be recognized in the marketplace. Manufacturing standards were different between the two founding organizations, and it was necessary to immediately begin the process of standardizing these procedures within the new organization.

Sales teams and the support organizations such as technical support and customer service are critical parts of any company's presence in the field, so support team structuring within a newly merged organization is a critical and immediate step in post merger activity. As much as is possible, key client relationships must be recognized and preserved so that the client experience is not undermined as the new organization evolves. GN ReSound moved quickly to put the new support team structures in place, with these key issues in mind, and, shortly after the merger, these teams were publicly announced.

Product lines that have competed against each other in the past, had to now be coordinated into the new company's strategy. Brand loyalties as well as technology loyalties are being carefully accommodated while pursuing economies of scale in purchasing and production. Eventually, the new organization will develop its own product line identity, but such a step needs to evolve at a pace that is comfortable for the marketplace to embrace.

Research and development teams from each former company had to be merged into one. Identifying the core competencies with each R&D organization was an essential step in GN ReSound's process of R&D integration. These subsets of expertise, once identified, were woven into the big picture R&D infrastructure, taking advantage of all areas of expertise, expanding critical areas with additional personnel and resources, and economizing in areas where expertise was sufficient.

A large element of the post acquisition process in today's hearing instrument market is integrating programming software. Although both companies have made their programming software NOAH compatible, the individual fitting modules themselves are quite unique in their construction, screen layout, functionality and overall design. Dispensers who have become used to a certain operating structure would prefer not to have to learn a new one. Yet, it is essential to integrate software functionality over time, especially as the new company develops its own product line identity. Again, this key step in the post acquisition process will evolve at a pace that the marketplace will accept.

Administrative systems such as computers, databases, data management tools, accounting procedures, billing procedures, account information tools etc., are being integrated into one base system that the new company can use. Since there are a lot of solid reasons behind why certain systems were chosen and certain procedures were created in the past within each founding company, this integration process is a very complex one. Yet, it is critical in the overall attempt to bring improved processes and procedures to the customers of the new organization. New operating systems are being installed now, with key personnel working to address database and information availability issues that may have hindered superior customer service in the past.

Prices and policies have been reviewed and integrated within the two product line structures currently being maintained. A new marketing team has been appointed and is actively pursuing new marketing programs, cooperative programs, support programs and development strategies that are designed around the new company's image and mission.

It is clear that a lot has already been accomplished since the merger was finalized, and a lot is still being incorporated into the new company structure. Customers of GN ReSound can continue to look forward to progress and changes on a variety of fronts that will help them and their patients be increasingly satisfied with hearing technology purchases.

Inquiries can be directed to:

David J. Smriga
Industry & Public Relations
GN ReSound North America