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 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.

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