Canadian COMPETITION & ANTITRUST LAW

I.  Overview

The pre-merger notification provisions of the federal Competition Act (the “Act”) require both parties to specified types of mergers that exceed the statutory monetary thresholds to file pre-merger notification filings with the federal Competition Bureau (the “Bureau”).

In addition, regardless of size, any transactions that falls within the statutory definition of “merger” under the Act is potentially subject to substantive review by the Bureau to determine whether it is likely to result in a “substantial prevention or lessening of competition” in a relevant market (or markets).

In other words, while the Act contains statutory monetary thresholds requiring that the Bureau be notified of mergers over a certain size prior to closing, even transactions that fall below these statutory monetary thresholds can be subject to substantive review by the Bureau (though this is relatively uncommon).

With respect to mergers that exceed the statutory monetary thresholds, notification to the Bureau is mandatory and failure to notify is a criminal offence.

The Bureau recently stated that “mergers are viewed positively as a means to increase competitiveness, allowing Canadians to benefit from lower prices, product choice and quality services, the Bureau does monitor even smaller transactions in some cases where a merger could substantially prevent or lessen competition in a particular relevant market.”

II.  Thresholds

In order for a transaction to be notifiable in Canada it must (i) involve the acquisition of an “operating business” in Canada (defined under the Act as a business undertaking in Canada to which employees employed in connection with the undertaking ordinarily report for work), (ii) be one of five types of transactions, (iii) exceed the statutory monetary thresholds set out in the Act and (iv) not fall within one of the statutory exceptions in the Act.

The five types of transactions that require pre-merger notification filings are:

- Asset acquisitions;
- Share acquisitions;
- Amalgamations;
- Non-corporate combinations; and
- Acquisitions of interests in non-corporate combinations.

In addition, a transaction must exceed certain “size of parties” and “size of transaction” monetary thresholds.

In particular, for share and asset acquisitions, the parties and their affiliates’ Canadian assets (or gross revenues from sales in, from or into Canada) must exceed CDN $400 million (the “size of parties” threshold).

In addition, the book value of the target’s assets in Canada (or annual gross revenues from sales in or from Canada generated by those assets) must also exceed CDN $70 million (the “size of transaction” threshold).

The size of parties and size of transaction thresholds are cumulative and both must be exceeded in order for a merger transaction to be notifiable.

There is an additional threshold for share acquisitions.  For the acquisition of public companies, the acquisition must result in the acquirer holding more than 20% of the voting shares (more than 50% if more than 20% is already held).  For the acquisition of private companies, the acquisition must result in the acquirer holding more than 35% of the voting shares (more than 50% if more than 35% is already held).

III.  Exceptions

The Act also contains a number of exceptions from the pre-merger notification obligation, including certain ordinary course acquisitions of real property and goods, an underwriting exception, transactions between affiliates and where an Advance Ruling Certificate (or ”ARC”), which is one type of pre-merger clearance under the Act, is obtained.

IV.  Who Must Notify

Both parties to a transaction (i.e., both the acquirer and the target) are required to file a pre-merger notification filing.  Parties may request that an ARC and/or “no action” letter be issued.  Parties will also often file a separate submission or brief with a pre-merger notification filing setting out the reasons why the proposed transaction is unlikely to prevent or lessen competition substantially in the relevant market(s).  In transactions which are high profile or there are likely to be competition issues, an early dialogue with the Bureau and a competition brief are particularly advisable.

V.  Closing Before Clearance

Canada is a “suspensory” jurisdiction.  This means that parties to a notifiable transaction are not permitted to complete the transaction after filing unless the applicable waiting period has expired or clearance has been received.

The recently amended Act also now gives a court or the Competition Tribunal new powers relating to non-compliance with the statutory waiting periods.  These include, for a proposed transaction, the power to issue an interim injunction or compel the filing of information and, for a completed transaction, the power to order that the merger be dissolved, an order for the divestiture of shares or assets or “administrative monetary penalties” (essentially civil fines) of up to CDN $10,000 for each day of non-compliance.

VI.  Waiting Periods

Following recent amendments to the Act, Canada now has a U.S. style two-stage merger review process.

Under this new process, after a pre-merger notification filing is made, there is an initial 30 calendar day waiting period after a filing is made during which the parties to a transaction are not permitted to complete the transaction unless clearance has been received (either by receipt of a no action letter or advance ruling certificate).

During the initial 30 day waiting period the Bureau may advise the parties to the transaction that it does not intend to challenge the transaction.  Alternatively, where the Bureau takes the position that there are potential competition issues, it may make a supplementary information request (the equivalent of a U.S. second request).  If the Bureau does so, the waiting period stops until a complete response has been filed whereby a second 30 day waiting period begins in which the parties are not permitted to close (again, unless clearance is received).

There is, as well, under the new merger clearance regime no limit as to how long the supplementary information request process can take.  This is because the burden is on the merging parties to complete the request and, where a second request is made, the “clock” will not start again until the order has been complied with (as compared to substantial completion in the U.S).  In addition, while parties are free to complete a transaction after 30 days of complying with a second request, the Bureau is not required to have finished its review of a transaction by then.  As such, parties may either opt to wait for the Bureau to complete its review or close and assume the risk that the Bureau may challenge the transaction post-closing.

VII.  Clearance

Parties may close a transaction when: (i) an ARC is received (the strongest form of clearance, typically issued in non-complex transactions where there are few or no issues and no competitive overlap), (ii) a “no action letter” is received (which indicates that the Commissioner does not, at the time it is issued, intend to apply to the Tribunal for remedies) or (iii) the applicable statutory waiting periods have expired.

It is worth emphasizing, however, that the Bureau has the power to continue to review a transaction after the applicable waiting periods have expired if clearance has not been received.

VIII.  Hostile Transactions

There are special notification rules for hostile transactions.

Under these rules, the initial 30 day review period begins on receipt of a complete filing from the bidder and the Bureau will notify the target that a filing has been received from the bidder (and give the target 10 days to file from the date the target is notified).

In addition, the second 30 day waiting period (where a supplementary information request has been issued) begins when the Bureau receives the requested information from the bidder (i.e., regardless of when the target complies).  This rule is intended to prevent targets from stalling a transaction by delaying filing.

IX.  Filing a Merger Notification

The Bureau’s Merger Notification Unit (“MNU”) is responsible for all pre-merger notifications in Canada. The MNU also gives guidance to parties regarding timing and information requirements for merger notification filings and enforces compliance with the pre-merger notification provisions of the Act.

X.  Filing Fees

Pre-merger notifications in Canada are subject to a CDN $50,000 filing fee plus taxes.

XI.  Substantive Review

Broadly speaking, the substantive review of a merger involves an analysis as to whether the proposed merger is likely to prevent or lessen competition substantially in one or more relevant markets post-merger (i.e., to assess what the potential anti-competitive effects of a merger may be).  Whether a merger is likely to prevent or lessen competition substantially in a relevant market turns largely around whether the merged firm will be able to exercise a materially greater degree of market power in a relevant market(s) post-merger.

The framework to analyze the potential anti-competitive effects of a merger involves evaluative criteria in the Act and from past Competition Tribunal decisions as well as the Bureau’s enforcement approach in its Merger Enforcement Guidelines (the “MEGs”).

In assessing potential competition issues associated with a merger, the Bureau will consider both “unilateral effects” (i.e., whether the merged firm alone is likely to be able to exercise market power post-merger) and “coordinated effects” (i.e., whether a group of firms together are likely to be able to exercise market power post-merger).

This analysis of market power involves, among other things, the review of a number of factors including the estimated market shares of the parties, concentration in the relevant market (or markets), barriers to entry and other so-called “evaluative criteria”, such as effective remaining competition, foreign competition and countervailing power of customers and suppliers.

Where the Bureau takes the position that a proposed merger is likely to prevent or lessen competition substantially, the Commissioner may seek a number of remedial orders from the Tribunal including an order to block the merger (in the case of a proposed merger) or an order for the dissolution of assets of shares (in the case of a completed merger).  The Bureau has also sought injunctions in the past to allow more time for substantive review (although this is unlikely to be as much of an issue after recent amendments to the merger review regime with the new two stage merger review regime).

With respect to market shares, the Bureau takes the position in its MEGs that it will generally not challenge a merger on the basis of a concern of a unilateral exercise of market power where the post-merger share is less than 35%.  In addition, the Bureau has taken the position that it will not generally challenge a merger on the basis of a concern of a coordinated exercise of market power if (i) the combined post-merger share of the four largest firms in the relevant market (CR4) is less than 65% or (ii) the post-merger share of the merged entity is less than 10%.

XII.  Challenging a Merger

The Bureau may challenge a merger either before or after closing.  The Bureau may seek an injunction to prevent closing or make an application to the Tribunal for a remedial order.  Potential remedial orders include an order to block the merger, an order for the dissolution of the merger or for the disposition of assets or shares.  The Bureau may also challenge a transaction for up to one year after closing (a period that has recently been shortened from the previous three years).

However, while the Commissioner has the power to make applications to the Tribunal for remedial orders, contested merger proceedings are relatively rare in Canada with the majority of issues being resolved by way of negotiated settlement (i.e., consent agreements providing for the disposition of assets, so-called “behavioral” remedies, etc.). 

OUR CANADIAN MERGER CONTROL SERVICES

We practice federal competition law, have provided competition law and compliance advice to clients across Canada and internationally and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act.  We have provided pre-merger notification and foreign investment advice in relation to numerous domestic and cross-border mergers.  Our Canadian merger control and foreign investment services include:

- Advice on the application of the Competition Act to mergers.
- Application of the Investment Canada Act to foreign investment in Canada.
- Preparing pre-merger notification filings and submissions.
- Drafting transaction documents.
- Merger-related compliance guidelines (pre-merger conduct memoranda).
- Coordinating and advice in relation to multi-jurisdictional merger review.

CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy,  Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal,  Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to Canadian and international clients.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.

Canada’s Minister of Industry announced today that a new Commissioner of Competition, Melanie Aitken, has been appointed for a five year term.

In making the announcement, Tony Clement said:

“I am very pleased to welcome Ms. Aitken to the Competition Bureau Canada as the Commissioner of Competition” … “Her knowledge, judgment and rigour will enhance the Bureau’s work and guide its success in the years ahead.”

Ms. Aitken has held several positions at the Bureau (including most recently Interim Commissioner), joined the Bureau in 2005 as Assistant Deputy Commissioner of Competition, Mergers, was appointed Senior Deputy Commissioner, Mergers in 2007.  Ms. Aitken’s previous positions have included being a partner at Bennett Jones LLP, being seconded to the Department of Justice Canada as Senior Counsel, being a partner at Davies Ward Phillips & Vineberg LLP in Toronto, working as an Adjunct Law Professor of Administrative Law with Osgoode Hall Law School and of Competition Law with Queen’s University Law School.

CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy,  Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal,  Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging, Canadian Competition Law Resources, Competition Law Links or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to clients across Canada and internationally.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us at +1 604 687 0555 or +1 778 867 5558.

DISCLAIMER

The materials and information on CANADIAN COMPETITION LAW are provided as legal information about Canadian competition law.  Reading and accessing this information does not create a lawyer-client relationship.  The information on our blog does not constitute legal advice or a legal opinion on any issue.  In addition, the information and materials on this website will change based on new competition law developments and, as such, may not be current as of the date of access.  As such, we take no responsibility for the accuracy or currency of the competition law information or materials on our blog, which should not be relied upon without receiving legal advice from competent legal counsel.