Sonova Faces Probe Over Profit Warning After Insider Sales

Sonova Holding AG Chairman Robert Spoerry
Sonova Holding AG Chairman Robert Spoerry. Source: Sonova Holding AG via Bloomberg

Sonova Holding AG, the Swiss maker of the Lyric hearing aid, said stock-exchange authorities are investigating a profit warning given to investors eight days after the chairman sold 300,000 shares.

Sonova issued the warning too late and failed to impose a timely blackout period that would prohibit company insiders from trading shares and options, Robert Spoerry, the new chairman, said at a press conference in Zurich today. An independent probe commissioned by the board over the last two weeks found no evidence of insider trading, he said.

“We were late and we are fully prepared to cooperate with the authorities,” Spoerry, 56, said in an interview after the press conference.

The Zurich Prosecutor’s Office said last week that it is considering an inquiry into share sales by directors and executives at the Staefa-based device maker. The Swiss government in January proposed stricter laws on insider trading and market manipulation, which would apply to a broader group of people. The proposals would bring Switzerland into line with European Union laws, the government said.

“There are still people in corporate Switzerland who lack the sensitivity on what is acceptable and what isn’t,” said Monika Roth, an attorney specializing in corporate law in Binningen, Switzerland. “There are still some shortcomings when it comes to insider information and compliance, and it’s good that the prosecutor is looking at this.”

Shares Fall

Sonova fell 10.9 francs, or 12 percent, to 82.4 in Zurich, giving the company a market value of 5.4 billion francs ($5.9 billion). The stock is at its lowest since June 2009. The shares have dropped 38 percent in the last year.

Chief Executive Officer Valentin Chapero, who had led the company since 2002, and Oliver Walker, Sonova’s chief financial officer, resigned and Chairman Andy Rihs will step down from his post while remaining on the board, the company said today.

Alexander Zschokke, 46, a member of the group management board who leads retail activities, will be interim CEO and Paul Thompson, 44, a former CFO for the company who went on to oversee strategy and acquisitions, will serve as interim CFO, Sonova said.

Sonova cut its profit and sales forecasts on March 16, citing the November recall of its Advanced Bionics hearing aid and regulatory difficulties that slowed the introduction of Phonak hearing aids in the U.S.

The stock plunged 23 percent to 89.15 Swiss francs that day after the company cut sales and profit forecasts for the year. Rihs sold 300,000 shares on March 8, the company said today. An executive board member sold 800 shares at 127 francs each on March 4, according to notices of transactions on the SIX Swiss Exchange website. The site didn’t name the seller.

‘Good Faith’

Rihs said he made the trades “in good faith” and has offered to buy back the shares at the original price. He told reporters at the press conference that he would step down as chairman to avoid further damage to the company’s reputation.

The Swiss executive should stay on the board because “he plays an emotional role with the company,” Spoerry said in the interview.

Rihs joined the company in 1966, concentrating on marketing and commercial operations, and developed a global distribution network. He has been chairman since 1992, and was CEO until April 2000, according to the company website.

Rihs formed the hearing-aid maker, then known as Phonak Holding AG, in 1985 from a previous company owned by his father, Ernst, who died in 1980, according to Sonova’s website. He also owned the Phonak cycling team, which disbanded in 2006 after member and Tour de France winner Floyd Landis failed drug tests.

High-End Hearing

The company changed its name to Sonova from Phonak in 2007. It employs more than 7,200 people worldwide as of Sept. 30 and had annual sales of 1.5 billion francs in fiscal 2010, according to Sonova’s website. Sonova specializes in high-end hearing aids with wireless communication systems. It advertises its Lyric hearing aid as “the contact lens for your ear.”

The board includes Anssi Vanjoki, executive vice president and general manager of Nokia Oyj’s mobile solutions unit; Ronald van der Vis, CEO of Esprit Holdings Ltd., Asia’s third-biggest clothier by market value; and Heliane Canepa, the former CEO of Nobel Biocare Holding AG, based in Glattbrugg, Switzerland.

Rihs’s term on the board expires next year. He had planned to step down this year or next, he said in a 2009 interview with Cash. Two weeks before that, Sonova agreed to buy Advanced Bionics Corp., the U.S. maker of the recalled cochlear implant, for $489 million.

Stock Trades

Company directors and managers sold about 2.4 million shares and warrants between Feb. 1 and the issuance of the new forecast, according to the SIX Swiss Exchange website.

Rihs sold the 300,000 shares at 125.07 francs each, for a total of 37.5 million francs, according to the exchange website.

“You have to wonder whether the chairman of the board didn’t know how the business is doing, and if so, how is that possible?” said Roth, the corporate attorney in Binningen.

Swiss law already makes it illegal for company managers, board members and public officials to abuse confidential information for their own financial gain and sets a maximum three-year prison term for the offense. The Swiss exchange can also fine companies that are too late to publish relevant information. A consultation period on the government’s proposed changes is set to end April 30.

Internal Probe

Stephan Meier, a stock-exchange spokesman, said he couldn’t confirm that preliminary investigations of Sonova have begun, citing exchange policy.

“The SIX Swiss Exchange Regulation is continuing to monitor Sonova’s activities and we note the company’s statement today regarding the delay of the March 16 profit warning,” Meier said by e-mail.

An internal probe by the Zurich-based law firm Homburger AG reviewed more than 200,000 company e-mails and didn’t reveal any evidence that Rihs knew that profit warning would be published a week later, Spoerry said.

The transition of the management team creates an opportunity for competitors to gain market share, Jefferies International Ltd. analysts including Ingeborg Oie wrote in a note today.

“It’s quite unusual that all three key people would leave at the same time,” Oie said in an interview.

The company said it’s still estimating any additional costs related to the events.

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