MERGER CONTROL
OUR MERGER CONTROL AND FOREIGN INVESTMENT LAW SERVICES
We practice federal Canadian competition/antitrust law, have provided Canadian competition law advice to clients across Canada and internationally and provide a full range of competition law and foreign investment law services including in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act. 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.
OVERVIEW OF MERGER CONTROL IN CANADA
Like most other major jurisdictions, under Canadian merger control is one of the three main pillars of Canadian competition/antitrust law (together with conspiracy/cartel and abuse of dominance/monopoly rules). As a result of amendments made to the Competition Act (the “Act”) in 2009, Canada now has a U.S.-style two-stage merger control regime. Together with a number of other recent amendments to the Act, the adoption of a new two-stage merger control system in Canada is one of the most significant changes to Canadian competition law in twenty-five years.
The pre-merger notification provisions of the Act require both parties to specified types of transactions that exceed the statutory monetary thresholds under the Act to file pre-merger notification filings with the Bureau. In addition, regardless of size, any transaction that falls within the statutory definition of “merger” under the Act, which is broad, is also 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). For mergers that exceed the statutory monetary thresholds, notification is mandatory and failure to pre-notify is a criminal offence.
Pre-merger Notification
For a transaction to be notifiable in Canada it must: (i) involve the acquisition of an “operating business” in Canada, (ii) be one of five specified types of transactions, (iii) exceed the statutory monetary thresholds and (iv) not fall within one of the statutory exceptions in the Act.
Canadian Operating Business
In order for a transaction to be notifiable in Canada, it must involve the acquisition of an “operating business” in Canada, which is defined under the Act as a business undertaking in Canada to which employees employed in connection with the undertaking ordinarily report for work. In this regard, the Bureau has taken the position that employees may include both independent contractors and part-time employees.
Types of Transactions
The five types of transactions that require pre-merger notification filing, assuming all of the other requirements for notification are met, are: (i) asset acquisitions, (ii) share acquisitions, (iii) amalgamations, (iv) non-corporate combinations and (v) acquisitions of interests in non-corporate combinations.
Thresholds
In order to be notifiable a transaction must also exceed the “size of parties” and “size of transaction” thresholds under the Act.
With respect to the size of parties threshold, the parties to a transaction and their affiliates’ Canadian assets (or gross revenues from sales in, from or into Canada) must exceed $400 million. With respect to the size of transaction threshold, 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 exceed $70 million.
For share acquisitions, there is an additional threshold that must be met. 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).
Exceptions
The Act also contains a number of exceptions from the pre-merger notification requirements. These include certain ordinary course acquisitions of real property and goods, an underwriting exception, transactions between affiliates and where an Advance Ruling Certificate (”ARC”), which is one form of pre-merger clearance available under the Act, is obtained.
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 or alternatively a “no action” letter be issued. Parties will also often file a separate competitive effects brief together with the filing setting out the reasons why the proposed transaction is unlikely to prevent or lessen competition substantially in the relevant market(s).
Waiting Periods
Canada is a suspensory jurisdiction, in that parties to a notifiable transaction are prohibited from completing the transaction after filing unless the applicable waiting period has expired (or affirmative clearance has been received). As a result of the recent amendments, Canada now has a U.S. style two-stage merger review process.
Under the new regime, filing triggers an initial 30 calendar day waiting period during which the parties to a transaction are not permitted to complete unless clearance has been received (either by receipt of a no action letter or ARC). During this 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 issues, it now has the power to issue supplementary information requests (a “SIR”) (the Canadian equivalent to U.S. second requests). If the Bureau issues a SIR, the waiting period stops until a complete response to the SIR has been filed upon which a second 30 day waiting period begins during which the parties are not permitted to close (again, unless affirmative clearance is received).
Under the new regime, there is no limit as to how long the second 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 fully complied with (compared to the lesser standard of substantial completion in the U.S).
In addition, while merging parties are free to complete a transaction after 30 days of complying with a second request, the Bureau is not required to have completed its review by that time. 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-completion.
The recently amended Act also now gives a court or the Tribunal new powers relating to non-compliance with the statutory waiting periods. These include, in the case of proposed transactions, the power to issue an interim injunction or compel the filing of information and, in the case of completed transactions, 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 $10,000 for each day of non-compliance.
Clearance
Parties may complete a notifiable transaction when: (i) an ARC is received (the strongest form of clearance under the Act and typically issued in non-complex transactions where there are few or no issues and no overlap), (ii) a “no action letter” is received stating that the Commissioner does not at that time intend to seek a remedial order or (iii) the applicable statutory waiting period has expired. It is worth noting, 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.
Hostile Transactions
There are special rules under the Act 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 SIR has been issued, begins when the Bureau receives the requested information from the bidder (i.e., regardless of when the target complies), a process that is intended to prevent targets from stalling a transaction by delaying filing.
Filing
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. In February, 2010 the new Notifiable Transactions Regulations came into force and the Bureau issued its new single notification form.
Substantive Review of Mergers
Broadly speaking, substantive review of mergers in Canada involves an analysis as to whether a proposed transaction is likely to prevent or lessen competition substantially in one or more relevant markets post-merger (i.e., the primary competition law issue is to assess whether and to what extent a merged firm may be able to exercise market power post-merger). Whether a merger is likely to prevent or lessen competition substantially in a relevant market turns largely on whether the merged firm will be likely to exercise a materially greater degree of market power in a relevant market (or markets) post-merger.
The framework to analyze the potential anti-competitive effects of a transaction includes evaluative criteria set out in the Act, past Tribunal merger decisions and the Bureau’s Merger Enforcement Guidelines (“MEGs”) (though the latter are not law). In assessing potential competition issues associated with a merger, the Bureau considers both unilateral effects (i.e., whether the merged firm alone is likely to be able to exercise market power post-merger) as well as 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” that include effective remaining competition, foreign competition and the countervailing power of customers, among other criteria.
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% and will not generally challenge a merger on the basis of a concern of coordinated effects 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%.
Challenging Mergers
The Bureau has exclusive jurisdiction to challenge mergers in Canada and may challenge a merger either pre- or post-completion. Where the Bureau takes the position that a proposed merger is likely to prevent or lessen competition substantially, the Commissioner may seek remedial orders from the Tribunal including an order to block the merger (in the case of a proposed transaction) 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 and may challenge a transaction for up to one year after closing, which time period 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 uncommon in Canada and the majority of issues are typically resolved by way of negotiated settlement (i.e., consent agreements for the divestiture of assets or in some cases “behavioral remedies”).
CANADIAN MERGER CONTROL LINKS AND RESOURCES
2010 Merger Notification Transaction-Size Threshold
Draft Fee and Service Standards Handbook
Draft Fee and Services Handbook for Merger-Related Matters
Efficiencies in Merger Review (Bulletin)
Fee and Service Standards Handbook
Hostile Transactions: Bureau Policy on Disclosure Information
The Merger Enforcement Guidelines as Applied to a Bank Merger
Merger Remedies in Canada (Bulletin)
Merger Review Performance Report (2007 – 2010)
Merger Review Process Guidelines (Enforcement Guidelines)
Notifiable Transactions Regulations
Notifiable Transactions (Interpretation Guidelines)
Notifiable Transactions (Procedures Guide)
INTERNATIONAL MERGER CONTROL LINKS AND RESOURCES
European Commission
ICN
OECD
U.S. DOJ / FTC
DOJ (Antitrust Division – Merger Enforcement)
FTC (Premerger Notification / Hart-Scott-Rodino)
CANADIAN COMPETITION LAW LINKS
For more information about Canadian competition law or our competition law services visit our: Abuse of Dominance, Advertising and Marketing Law, Bid Rigging, Canadian Competition Law, Canadian Competition Law Compliance, Canadian Competition Law Home, Competition Act Amendments, Competition Bureau Investigations, Competition Law Courses and Conferences, Competition Law Litigation, Competition Law Publications, Competition Law Resources, Competition Law Services, Conferences, Conspiracy and Competitor Collaborations, Conspiracy – FAQs, Global Competition / Antitrust Law Resources, Global Competition Law Updates, Investment Canada Act, Merger Control, Merger Control FAQs, Private Actions, Promotional Contests, Publications, Refusal to Deal, Team, Trade Associations or Trade Association Cases pages or visit our website at www.NortonStewart.com.
CONTACT US
We provide Canadian competition law and consulting services to Canadian and international clients. For more information about our services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558. Visit us on the web in Toronto at www.torontocompetitionlawyer.com or www.torontocompetitionlaw.com.