Archive for the 'Mergers' Category
The Globe and Mail, Reuters, Bloomberg and others reported that Maple Group, composed of 13 Canadian financial institutions, extended its C $3.8 billion mixed cash and share offer for the TMX Group for a fourth time to February 29th.
Maple’s offer to acquire the TMX is subject to approval from provincial securities regulators and the Competition Bureau, which commenced a second-stage review in November, 2011.
Some of the potential issues the transaction raises include a high degree of concentration in the trading services market and access and pricing issues in relation to clearing and settlement services, as in addition to combining the TMX with Alpha (Canada’s second largest exchange) the transaction would also include the acquisition of CDS Inc., Canada’s currently not-for-profit equity and fixed-income securities clearing operator.
Businessweek, the Wall Street Journal and others reported yesterday that Maple Group Acquisition Corp., composed of 13 Canadian financial institutions, will once again extend its Cdn. $3.73 billion mixed cash and shares offer for the TMX Group beyond the previous January 31st deadline if regulatory approvals are not received.
Maple’s offer to acquire the TMX is subject to approval from provincial securities regulators and the federal Competition Bureau, which initiated a second-stage review with the Commissioner of Competition announcing in November, 2011 that the Bureau had “serious concerns” about the transaction.
Some of the potential issues the transaction raises include a high degree of consolidation in the trading services market and issues based on access and pricing of clearing and settlement services, as the transaction would also include the acquisition of CDS Inc., Canada’s currently not-for-profit equity and fixed-income clearing operator.
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For more information about the proposed transaction see:
We are pleased to provide this global competition update, with a focus on Asia Pacific, from our friends at Rajah Tann in Singapore.
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Happy New Year! Welcome to our refreshed Competition Review 2012, which presents an overview of developments in competition laws from around the world in the past few months, with a focus on ASEAN and Asia. This issue covers developments, which have occurred in the second half of 2011 that may interest you.
Each of the decisions and studies discussed below is intended to give you a flavor of the issues in the competition and anti-trust scene so that, when you review your business activities, structure new deals or make acquisitions, you have these issues at the back of your mind and provide for them. For ease of convenience we have organized our Competition Review into three sections – anti-competitive agreements, abuse of dominance and mergers.
We set out below some of the key principles that emerge from the cases discussed below:
(a) co-operating with competition authorities for a speedy resolution may help reduce penalties (see EU: European Commission (‘Commission’) Fines Producers Of CRT Glass €128 Million In Cartel Settlement);
(b) a competition authority may recommend shareholders to replace their directors or officers if they do not fully cooperate with investigations (see Indonesia: Indonesian Competition Authority KPPU Recommends President Director Be Replaced);
(c) even though a competition authority may not have powers to review mergers, it may investigate the transaction for other anti-competitive aspects (see Malaysia: Malaysia Competition Commission (‘MYCC’) To Investigate Air Asia-Malaysian Airlines (‘MAS’), Share Swap And Collaborative Agreement);
(d) exchanging information between competitors through a third party, such as software service providers, may lead to a violation of competition laws if the exchange is of sensitive information (see UK: Motor Insurers Agree To Limit Data Exchange And Provide Commitments to the Office Of Fair Trading (‘OFT’)); and
(e) not all jurisdictions, where merging parties have presence, will require merger notification. Undertakings with large presence in one jurisdiction may not have sufficiently significant presence in other jurisdictions that crosses notification triggers (see Indonesia: Microsoft’s Acquisition Of Skype Does Not Need Notification).
The past year has been a busy one for Canadian competition law.
Developments in 2011 include new cases, enforcement and legislation in most key areas including abuse of dominance (the Competition Bureau’s ongoing challenge of The Toronto Real Estate Board and CREA settlement in late 2010), criminal conspiracy (developments in price-fixing class action litigation and some Bureau enforcement), refusal to deal (several important private access section 75 cases, including a decision of the Federal Court of Appeal), contested mergers (in the waste and airline markets), price maintenance (the merchant fees case involving Visa and MasterCard) and misleading advertising (involving Bell Canada, Rogers and others).
The Competition Bureau is testing the new rules under Canada’s Competition Act, which came into force in 2009 and 2010, and private plaintiffs are creating new law in a number of ongoing competition/antitrust class actions in Canada (principally indirect purchaser price-fixing cases relating to the sale and supply of dynamic random access, or “DRAMs”, high fructose corn syrup and computer operating systems).
At the same time, several new pieces of legislation have been introduced including a federal omnibus crime bill, which will eliminate conditional sentences for some competition law offences, and sweeping new anti-spam legislation (Bill C-28 or “FISA“) that once in force will be among the strictest anti-spam regimes in the world.
The Commissioner of Competition, and other federal enforcement officials including the RCMP, have also expressed intentions to adopt tougher enforcement stances in relation to competition law and other white collar crime.
In general, these developments mean that it remains important for Canadian companies, organizations and their executives to maintain a practical awareness of Canadian competition law.
Some of the key competition law and related developments of 2011 include:
In an interesting Washington Post article, Cecilia Kang and Jia Lynn Yang write about why the U.S. Federal Communications Commission (FCC) opposed AT&T’s acquisition of T-Mobile (see: How AT&T Fumbled its $39 Billion Bid to Acquire T-Mobile).
While the Department of Justice sued to block the merger in August (see: Justice Department Files Antitrust Lawsuit to Block AT&T’s Acquisition of T-Mobile) the FCC issued a report on November 29th which concluded that the transaction raised “significant competitive concerns” in the mobile market, and “’substantial and material’ questions about [the transaction’s] competitive effects on roaming, wholesale, and resale services, backhaul, and handsets” (see: Commissioner Copps on the Staff Report on the ATT/T-Mobile Merger). The FCC also concluded that the “parties’ claim that [the transaction] would lead to lower prices is flawed and over-estimates the benefits that would be passed on to consumers.”
According to the authors of the Post article, the “king of Washington lobbyists” and a “bare-knuckled brawler that spares no expense to win any fight”, may have used undue lobbying pressure on Washington regulators that resulted in its failure to acquire T-Mobile.
On December 7, 2011, the International Competition Network (ICN) published its updated ICN Work Product Catalogue, with interactive links to ICN reports and documents from 2008 to 2011 in the advocacy, cartel (conspiracy), mergers and unilateral conduct (monopoly / abuse of dominance) areas.
The Wall Street Journal reported earlier today that the Ontario Securities Commission (“OSC”) has approved Alpha (Alpha Trading Systems Limited Partnership and Alpha Exchange Inc.), Canada’s largest alternative trading platform to the TSX, as a stock exchange (see: Ontario Securities Regulator Allows Alpha to be Exchange).
The OSC’s Recognition Order sets out the terms and conditions of Alpha’s recognition as an exchange and the review process to be followed for the rules, policies and other similar instruments of Alpha Exchange.
The TMX, which owns and operates the TSX, is currently subject to a Cdn. $3.8 billion friendly bid by Maple Group, which requires, in addition to Provincial securities regulatory approvals in Ontario, Quebec, Alberta and British Columbia, clearance by the federal Competition Bureau. Alpha’s shareholders include a number of the Maple Group consortium’s investors including CIBC, Dejardins, National Bank and Scotia.
Last week the Commissioner of Competition expressed “serious concerns” about the Maple/TMX transaction, which is currently subject to a second stage review by the Bureau (see: Commissioner of Competition Addresses Current Enforcement Priorities in Two Wide-ranging Talks in Vancouver).
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For the OSC’s Notice of Approval and Recognition Order see:
Recognition of Alpha Trading Systems Limited Partnership and Alpha Exchange Inc. as an Exchange
In a small stroke of serendipity, I bumped into Paul Crampton here in Vancouver last week, who is on the Tribunal hearing the Commissioner’s challenge of the CCS Corporation / Complete Environmental waste merger (a merger to monopoly case and the first fully contested merger case before the Tribunal in six years).
In chatting with Paul, now a Federal Court judge and known in the competition bar for a variety of clever turns of phrase, such as raising a finger in the air and rhetorically requesting that a thorny legal or economic issue be “decoded” (usually for the benefit of others in the room less learned than Paul in such matters), I threatened to quote him on my blog.
It just so happened that the previous day, in working through a product market definition question, I had come across one of his quotes from his 1990 book on mergers.
So, as threatened, here is the quote, which I thought rather a fine one by Paul on the geeky topic of market definition in competition/antitrust law cases (and rather apropos following my bumping into him after he had heard argument in the BC waste merger case):
“The importance of preparing a well articulated argument in support of one’s view of the ‘relevant market’ in the context of a competition law case cannot be overstated. Put succinctly, the party who manages to convince the court of his view of this matter generally wins the case, because as the purported market is enlarged, the relative significance of the merging parties within the market usually decreases. Conversely, as a market is defined progressively more narrowly, the competitive significance of challenged conduct typically increases.” (Paul Crampton, Mergers and the Competition Act (Toronto: Carswell, 1990)).
We wish Paul and the Tribunal all the best of luck in “decoding” the waste merger.
Bloomberg has reported that federal Industry Minister Christian Paradis has again raised the prospect of amending Canada’s Investment Canada Act (the “ICA”) in remarks he made in New York last week (see: Canada Open to Changing Foreign-Takeover Law, Paradis Says).
The Industry Minister’s comments closely follow a C.D. Howe Institute report also issued last week calling for fundamental changes to the ICA to stimulate foreign direct investment in Canada, including a change to the overarching test for foreign investment approval (replacing the current “net benefit to Canada” test with a national interest test) (see: New Publications – C.D. Howe Institute Report – Reforming the Investment Canada Act: Walk More Softly, Carry a Bigger Stick).
On December 1, 2011, the C.D. Howe Institute issued a report on the Investment Canada Act entitled Reforming the Investment Canada Act: Walk More Softly, Carry a Bigger Stick, authored by Philippe Bergevin and Daniel Schwanen.
The Commissioner of Competition, Melanie Aitken, addressed current enforcement priorities in two engaging and wide-ranging talks in Vancouver this evening: a keynote speech at a reception hosted by the University of British Columbia, National Centre for Business Law at the Four Seasons and a Vancouver Competition Policy Roundtable meeting organized by Professor Tom Ross of the Sauder School of Business.
TMX News Release (November 29, 2011)
“The Commissioner advised Maple and TMX Group that she has serious concerns about the likely competitive effects of the proposed transactions in the current environment, primarily in connection with equities trading and clearing and settlement services in Canada.
The Commissioner indicated that she has not reached a final conclusion and that her current views may be affected by further factual information and developments, which may include changes in the applicable securities regulatory regime, and any commitments or other remedial measures that Maple may be prepared to take to address her concerns.
Maple and TMX Group intend to continue to work closely with staff of the Competition Bureau to address the Commissioner’s concerns, including by identifying appropriate remedial measures. As Maple has stated previously, it is committed to working constructively with all of the relevant regulators, including Canadian securities regulators, to address any questions they may have so that the proposed transactions can proceed in the best interests of TMX Group, its shareholders and the Canadian capital markets. Maple and TMX Group continue to strongly believe that the proposed transactions will substantially benefit all capital market participants.”
On November 24, 2011, the Supreme Court of Canada denied leave in United States Steel Corporation et al. v. Attorney General of Canada (FC) (Civil) (By Leave) (34389). See: Supreme Court of Canada Judgements. See also: National Post – Supreme Court Won’t Hear U.S. Steel Appeal.
To appeal a decision of a court of appeal in a civil case to the Supreme Court, the party wishing to appeal must first obtain leave (i.e., permission) to do so. Under the Supreme Court Act, an application for leave to appeal may be granted if the Supreme Court finds that the case: (i) raises an issue of public importance and (ii) should be decided by the Supreme Court. Any case must raise an issue that goes beyond the immediate interests of the parties.
The Supreme Court does not issue reasons for its decisions to allow or dismiss applications for leave to appeal. Judgments on applications for leave to appeal are also generally final (under the Supreme Court of Canada Rules, an application for leave to appeal will not be reconsidered unless there are exceedingly rare circumstances in the case that warrant consideration).
This U.S. Steel case relates to the federal government’s lawsuit against U.S. Steel in relation to the performance of undertakings U.S. Steel provided in its 2007 acquisition of Hamilton-based Stelco Inc. The Federal Court had previously allowed the government’s lawsuit to proceed.
Where an investor fails to comply with the Investment Canada Act (e.g., fails to file an application for review or notification, fails to comply with undertakings or completes a reviewable investment without the requisite approval) a number of penalties may be imposed. These include divestiture of assets, the revocation (or suspension) of voting rights and financial penalties of up to Cdn. $10,000 per day that an investor is in contravention of the Investment Canada Act (being sought by the government in this case).
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For the Supreme Court of Canada’s leave decision see:
Supreme Court of Canada Judgements
For more about the Investment Canada Act see:
Reuters Canada, Canadian Business, the Wall Street Journal and other media have reported that the Competition Bureau has issued a “no action” letter clearing Rio Tinto’s Cdn. $654 million friendly takeover offer for junior uranium developer Hathor Exploration.
In making the announcement, Rio Tinto said in its press release:
“Rio Tinto yesterday received Canadian Competition Bureau clearance for its offer, made through an indirect wholly-owned Canadian subsidiary, to acquire all the common shares of Hathor Exploration Limited (“Hathor”) for C$4.70 in cash per common share.
The Commissioner of Competition issued a ‘no action letter’ which constitutes compliance with all requirements of the Competition Act (Canada) in relation to Rio Tinto’s offer for Hathor.
Rio Tinto’s recommended offer values Hathor at approximately C$654 million on a fully-diluted basis and represents a premium to the unsolicited revised offer of Cameco Corporation’s of C$4.50 per common share of Hathor made on 14 November.
Hathor’s board of directors unanimously recommends that Hathor shareholders accept and tender their common shares to Rio Tinto’s offer which is open for acceptance until 5:00pm (Toronto time) on 30 November 2011, unless extended or withdrawn in accordance with its terms.”
See: Rio Tinto Receives Canadian Competition Bureau Clearance for its Offer for Hathor Exploration.
“No action letters” are one of two types of merger clearance (the other being Advance Ruling Certificates, or “ARCs”) available under the Competition Act. Unlike an ARC, however, where a no action letter is issued, the Commissioner may challenge the transaction for up to one year post-closing (a period recently shortened from three years as a result of 2009 amendments to the Competition Act).
Rio Tinto’s $4.70 per-share offer for Hathor, which it raised last week, expires November 30th.
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For more about Canadian merger control see:
On October 25, 2011, the Competition Bureau published the Commissioner of Competition’s speech given at the 2011 Canadian Bar Association’s Annual Competition Law Conference in Ottawa.
It is fair to say that the Commissioner’s recent speech presented a singular tone across the civil and criminal competition law areas: enhanced enforcement.
Of the Commissioner’s remarks, some of the more interesting points include the Bureau’s increased focus on reviewing non-notifiable mergers (i.e., transactions that do not trigger the notification thresholds under the Competition Act), the statement that the Bureau has begun to revoke markers in some immunity cases where in its view immunity applicants are not complying with its Immunity Program and a subtle suggestion that the Bureau was preparing to bring, but not quite yet in a position to commence, the first conspiracy cases under the amended section 45 (Canada’s new hard core criminal conspiracy offences). The following are some highlights from the Commissioner’s recent speech.
On October 6, 2011 the Competition Bureau issued its updated Merger Enforcement Guidelines.
The Bureau’s new MEGs, which set out its approach to the substantive review of mergers in Canada, are the first update to the MEGs since 2004 and the result of publication consultations across Canada in 2010 and 2011.
The Bureau has also recently issued a number of new (or updated existing) merger related guidelines, policies and reports. These include: Merger Review Performance Report (2010), Competition Bureau Merger Remedies Study Summary, Competition Bureau Fees and Service Standards Handbook for Mergers and Merger-Related Matters, Procedures Guide for Notifiable Transactions and Advance Ruling Certificates Under the Competition Act, Hostile Transactions Interpretation Guidelines, Pre-Merger Notification Interpretation Guidelines and Merger Review Process Guidelines.
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For the Bureau’s news release issued with the new MEGs see:
Competition Bureau Issues Final Merger Enforcement Guidelines
For more information about Canadian merger control see:
On August 15, 2011 Air Canada filed its response in the contested Air Canada / United Continental merger.
In this case, the Bureau seeks to both unwind existing Air Canada / Continental cooperation agreements and also to prevent a proposed cross-border joint venture between the parties under the merger provision of the Competition Act (section 92) and the recently enacted, and as yet untested, civil agreements provision of the Act (section 90.1).
The Air Canada / Continental agreements have involved coordination in relation to code sharing operations, joint fare discounts and incentive programs on trans-border routes (the “Alliance Agreements”).
The proposed merger, which was to be achieved by way of a joint venture, would, according to Air Canada, “complement” its existing JV agreements with Continental and result in “deeper and more comprehensive integration and coordination” on Air Canada / Continental trans-border routes that had previously been possible under the parties’ existing bilateral agreements.
Proposed integration would include joint pricing, joint route planning and scheduling, coordinated marketing, harmonization of sales processes and revenue sharing. In essence, according to Air Canada, the proposed JV would both add to the number of existing Air Canada / United coordinated activities and further formalize existing contractual arrangements.
The case is significant in that it is the first challenge of agreements by the Bureau under the civil agreements provision of the Act passed in 2009 (and which came into force in 2010) and also represents a relatively rare challenge of a merger structured as a joint venture. “Merger” is defined broadly in the Competition Act to include acquisitions of control by “purchase or lease of shares or assets, by amalgamation or by combination or otherwise” (and while there is a merger exception for joint ventures, it is relatively narrowly defined and difficult to apply in practice).
The case is also significant in that it is one of two currently proceeding contested merger cases before the Tribunal, which are the first contested merger cases in six years.
On August 11, 2011 the Competition Bureau issued a Merger Remedies Study, summarizing its review of the effectiveness of merger remedies obtained in 23 cases under the merger provisions of the Competition Act between 1995 and 2005.
The results of the Bureau’s study are to be used to revise its Information Bulletin on Merger Remedies in Canada first issued in 2006 (see: Information Bulletin on Merger Remedies in Canada) and its consent agreement outline template.
135 interviews were conducted with merged entities (20), purchasers (28), customers (60) and third parties (27). According to the Bureau, its remedies study “has been of significant value in confirming that many of the Bureau’s existing policies and procedures relating to the design and implementation of merger remedies are effective and in identifying areas where such policies and procedures could be more effective.”
On June 27th, the Competition Bureau announced that would seek to block a proposed joint venture between Air Canada and United Continental which, according to the Bureau, would “monopolize ten important Canada/United States routes, and substantially reduce competition on nine additional routes.”
In making the announcement, the Bureau said:
“The proposed joint venture is effectively a merger between Air Canada and United Continental on all of their Canadian and US operations. It would allow the parties to jointly set prices, capacity and schedules. If allowed to proceed, it will result in:
a monopoly on ten transborder routes;
substantially reduced competition on an additional nine transborder routes; and
significantly higher prices.
In addition to challenging the joint venture, the Commissioner is challenging three existing “coordination agreements” between Air Canada and United Continental. These agreements allow Air Canada and United Continental to coordinate key aspects of competition including, but not limited to, joint pricing and scheduling, as well as revenue sharing. Through these existing agreements, the companies currently have the power to charge passengers inflated fares. Moreover, if these anti-competitive provisions are further implemented, with or without the joint venture, Canadians will pay even more for less choice and higher fares.”
The Bureau has now filed its application in this case (see: Competition Tribunal).
The Bureau’s application, which is only the second contested merger since 2005, has a number of interesting aspects. These include:
Parties’ press releases. The Bureau became aware of the proposed Air Canada/United JV from press releases issued by the parties. In the past, it was thought rather uncommon for the Bureau to become aware of mergers through the media (i.e., as opposed to parties notifying transactions to the Bureau under the pre-merger notification provisions of the Act). This may signal an increasing effort by the Bureau to challenge mergers discovered through media sweeps, either on the basis that they were notifiable or non-notifiable transactions that nevertheless potentially raise substantive competition issues (the Bureau has jurisdiction under the Act to challenge any “merger” as broadly defined in the Act, whether or not it is notifiable, i.e., exceeds the Act’s pre-notification thresholds).
Joint venture challenged as a merger. This case is also interesting as a challenge of a JV as a merger. While joint ventures can in theory be reviewed under four provisions of the Act (as a criminal conspiracy, under the civil agreements provision, as a merger or under the abuse of dominance provisions), challenges of JVs in Canada on merger grounds are relatively rare. Having said that, the definition of “merger” under the Act is very broad, encompassing not only conventional asset and share acquisitions, but also the acquisition of a “significant interest” in a business. While the Bureau has taken the position in its Merger Enforcement Guidelines (MEGs) that acquiring a “significant interest” could include where an acquirer obtained an “ability to materially influence the economic behavior of the business” (such as through control of pricing, purchasing, distribution and marketing decisions), what JVs might in reality be considered a merger has generally been more the subject of speculation than certainty for merging parties and their counsel. In this regard, the Bureau takes the position in its recently filed Application that the proposed merger will, if allowed to proceed, lead to the parties “acquiring or establishing … a significant interest” in each other’s operations, and in particular the ability to make decisions on “all aspects of competitive behavior” that would be “indistinguishable … from common ownership.” As such, if this application proceeds, it may shed needed light on what types of de facto acquisitions may trigger the merger provisions of the Act.
First challenge under section 90.1 (civil agreements provision). The case is also the first challenge by the Bureau under the civil agreements provision (section 90.1) of the Act, which came into force in March, 2010 as part of Canada’s new two-track conspiracy regime. Under section 90.1, the Bureau may make applications to the Competition Tribunal for Tribunal orders where an agreement between actual or potential competitors prevents or lessens competition substantially in one or more markets (or is likely to do so). While it is generally thought that this new civil provision has many parallels to the existing merger provisions of the Act, including the required competitive effects test, evaluative factors for market impacts and an efficiencies defence, this will be the first case to potentially test the meaning and boundaries of this new section. If the case proceeds before the Tribunal, it may clarify key elements of section 90.1 including the meaning of “agreement” and “competitors”, the evaluation of the required competitive effects test and how, if at all, a review under section 90.1 differs in substance from merger review under the merger provisions of the Act.
Attempt to block the transaction. Finally, the case is somewhat noteworthy in that the Bureau is seeking to block the Air Canada/United JV altogether. In Canada, unlike some other jurisdictions, it is relatively unusual for regulators to seek to block a transaction altogether, rather than to negotiate a remedy.
For the Bureau’s news release see:
Competition Bureau Seeks to Block Joint Venture between Air Canada and United Continental
For the Bureau’s Backgrounder see:
For the Bureau’s Tribunal Application see:
For more about merger control in Canada see:
For more about Canada’s new two-track conspiracy regime see:
On June 27th, the Competition Bureau issued updated draft Merger Enforcement Guidelines for public comment.
The Bureau’s Merger Enforcement Guidelines, which govern the Bureau’s approach to substantive merger review, have been revised by the Bureau following national roundtable consultations in 2010 and 2011.
For the full news release see:
Competition Bureau Issues Draft Revised Merger Enforcement Guidelines for Comment
For more about merger Control in Canada see:
The Competition Bureau announced that would seek to block a proposed joint venture between Air Canada and United Continental which, according to the Bureau, would “monopolize ten important Canada/United States routes, and substantially reduce competition on nine additional routes.”
In making the announcement, the Bureau said:
“The proposed joint venture is effectively a merger between Air Canada and United Continental on all of their Canadian and US operations. It would allow the parties to jointly set prices, capacity and schedules. If allowed to proceed, it will result in:
a monopoly on ten transborder routes;
substantially reduced competition on an additional nine transborder routes; and
significantly higher prices.
In addition to challenging the joint venture, the Commissioner is challenging three existing “coordination agreements” between Air Canada and United Continental. These agreements allow Air Canada and United Continental to coordinate key aspects of competition including, but not limited to, joint pricing and scheduling, as well as revenue sharing. Through these existing agreements, the companies currently have the power to charge passengers inflated fares. Moreover, if these anti-competitive provisions are further implemented, with or without the joint venture, Canadians will pay even more for less choice and higher fares.”
According to the Bureau, it became aware of the proposed Air Canada/United joint venture after the parties issued a press release.
Joint ventures can be reviewed under at least four provisions of the Competition Act: as a criminal conspiracy, under the civil agreements provision, as a merger or under the abuse of dominance provisions, which also contemplates joint dominance.
In this case, the Bureau is challenging the proposed JV under the merger provisions of the Act, which allow the federal Competition Tribunal to issue orders including blocking proposed mergers or ordering the dissolution of assets or shares in the case of a completed merger.
The Bureau is also challenging three existing “coordination agreements” between the parties under the newly enacted civil agreements provision – section 90.1 – which is the Bureau’s first challenge to an allegedly anti-competitive agreement under this provision, which came into force in 2010 as part of sweeping amendments to the Competition Act.
Under the merger provisions of the Act, the Tribunal can issue orders, including blocking proposed mergers (or ordering the dissolution of assets or shares in the case of a completed merger) where a merger is found to prevent or lessen competition substantially. Under the new civil agreements provisions – section 90.1 – the Tribunal has the power to make “remedial orders” (i.e., for conduct to stop) where an agreement between actual or potential competitors prevents or lessens competition substantially.
It is, however, relatively unusual for a proposed agreement to be independently challenged by the Bureau outside of the context of parties seeking merger clearance or an advisory opinion for proposed business conduct. Possibly the parties concluded that the proposed JV was not notifiable under the merger provisions of the Act or there was a failure to adequately review whether the proposed JV may have required merger notification.
Another interesting aspect of this case is that the Bureau alleges that the proposed joint venture was intended to circumvent foreign ownership restrictions governing Canadian airlines, by allowing the parties to in essence merge though the joint venture.
With respect to market share and concentration issues, the Bureau’s concerns appear to primarily be based on increased “post-merger” market shares on specific city pair routes of between 34% and 100% (market shares typically being calculated in airline markets based on city pair routes).
Also interesting is the fact that while the Commissioner has the power to apply to the Tribunal for remedial orders, contested merger proceedings are relatively rare in Canada with the majority of issues typically resolved by way of negotiated settlement (i.e., consent agreements for the divestiture of assets and to a lesser extent the adoption of behavioural remedies).
For example, the Bureau’s recent challenge of CCS Corporation’s proposed acquisition of Complete Environmental, owner of the proposed Babkirk Landfill in Northern British Columbia, was the Bureau’s first merger challenge since 2005.
For the complete news release see:
Competition Bureau Seeks to Block Joint Venture between Air Canada and United Continental
For the Bureau’s Backgrounder see:
For the Bureau’s Competition Tribunal Application see:
For more about merger control in Canada see:
For more about Canada’s new two-track conspiracy regime see:
The U.S. Department of Justice, Antitrust Division (DoJ) has released an updated Policy Guide to Merger Remedies.
In making the announcement, the DoJ said:
“Although the updated policy guide reflects changes in the merger landscape, the goal of the Antitrust Division remains the same – to provide an effective remedy to eliminate the anticompetitive effects of a proposed transaction, the department said.
“In every case, the Antitrust Division focuses on the specific facts of the proposed transaction. We are prepared to clear a merger, block a merger or accept a remedy that maintains efficiencies as long as the result eliminates any competitive harm,” said Assistant Attorney General Christine Varney of the Department of Justice’s Antitrust Division. “In the current environment of increasing transnational mergers and complex vertical transactions, the Antitrust Division must be ever nimble in its efforts to ensure that any remedies effectively preserve competition, promote innovation and protect consumers. The updated policy guide takes into account these changes.”
The updated policy guide highlights the role of the Antitrust Division’s recently created Office of the General Counsel, which will be principally responsible for enforcing division consent decrees. The updated policy guide also reflects the changes in the merger landscape and the lessons the division has learned from the remedies it has entered into since the issuance of the original guide in 2004, ensuring that it accurately details the division’s merger remedy practices.”
Like Canada, the DoJ’s Policy Guide to Merger Remedies sets out how the U.S. DoJ’s Antitrust Division analyzes proposed merger remedies, including structural remedies (divestitures of assets, businesses or intangible assets, i.e., intellectual property) or behavioural remedies (altering the conduct of a post-merger entity such as through firewalls or partitions, non-discriminatory purchase or supply terms, mandatory licensing or anti-retaliation provisions).
The DoJ’s revised Policy Guide to Merger Remedies also addresses, like the Bureau’s 2006 Information Bulletin on Merger Remedies in Canada, key considerations for the negotiation and implementation of merger remedies, including the timing for adoption of remedies (e.g., “upfront” or “fix-it-first” remedies versus post-completion adoption of remedies), the use of hold separate provisions (to prevent the integration of merger assets until a remedy is negotiated) and selling trustees.
For more see DoJ news release: Antitrust Division Issues Updated Merger Remedies Guide: Updated Guide Recognizes Change in Merger Landscape, Department of Justice Policy Guide to Merger Remedies and the Bureau’s Merger Remedies Information Bulletin: Information Bulletin on Merger Remedies in Canada.
On June 20, 2011, the U.K. Office of Fair Trading, the U.K.’s competition regulator, announced that it was referring the proposed acquisition of Chi-X Europe Limited by BATS Trading Limited to the Competition Commission for further investigation.
In making the announcement, the OFT said:
“Both companies operate Multilateral Trading Facilities (MTFs) which enable market participants (investment banks, brokers and dealers) to trade pan-European equities through a single platform as an alternative to trading on national exchanges such as the London Stock Exchange (LSE). MTFs are relatively new, having mostly formed following the introduction of the European Markets in Financial Instruments Directive in 2007. Billions of pounds worth of equities are traded on these platforms daily.
After the LSE, the merger parties are the two largest MTFs for the trading of UK-listed equities. The merger reduces the number of significant suppliers of trading services for UK-listed equities from three to two. In addition the parties have very similar service offerings. Although the evidence is mixed, the OFT believes that there is a realistic prospect that, absent the merger, the parties would going forward have competed more strongly against each other, as well as competing against the LSE.
Ali Nikpay, OFT Senior Director and decision maker in this case said:
‘This case is not one in which we have encountered widespread customer complaints. However, we cannot rule out the prospect that such a structural shift in the marketplace would lead to a substantial lessening of competition. We have therefore referred the merger to the Competition Commission for a more detailed investigation so it can determine whether a substantial lessening of competition is probable.’”
Based on the OFT’s announcement, U.K. competition law regulators appear to have concerns that the proposed BATS/Chi-X transaction will result in the combination of the two largest alternative trading platforms for equities in the U.K. and as well based on an apparent concern arising from the product overlap (trading services) between the two exchanges. It is not yet clear, however, whether the U.K. regulator perceives post-merger concentration issues for multiple products (e.g., clearing and auction services, in addition to equity trading services) or whether there is a risk that the transaction may be blocked altogether (as opposed to the imposition of a behavioural or structural remedy).
In this regard, this most recent stock exchange merger case follows the recently abandoned joint bid by the NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. last month to acquire the NYSE Euronext, following a decision by the U.S. Department of Justice to block the transaction altogether (see: NASDAQ OMX and IntercontinentalExchange Abandon Acquisition of NYSE Euronext).
The proposed BATS/Chi-X transaction also follows the recent plays for the TMX Group Inc. by the London Stock Exchange Group plc (see Competition Bureau Issues No Action Letter in TMX/LSE Deal) and the more recent all-Canadian hostile bid launched by the Maple financial consortium (see: Maple Group Launches Cdn. $3.7 Billion Hostile Bid for TMX Group Inc.).
While the Competition Bureau has issued a no action letter clearing the proposed TMX/LSE merger, it is not yet clear what competition issues might ultimately still prove to be an issue for the Maple bid for the TMX (which, like the proposed BATS/Chi-X deal, would involve the combination of the largest alternative stock exchange to the TSX).
For the OFT’s full news release see:
OFT Refers Equity Trading Merger to the Competition Commission
On June 13, 2011, the Maple Group Acquisition Corp., a consortium of 13 Canadian financial institutions, launched a Cdn. $3.7 billion hostile bid to acquire 70% of the TMX Group Inc. for $48 per share.
(Maple is composed of 13 banks, pension funds and institutional investors: Scotia Capital Inc., TD Securities, National Bank of Canada, Canadian Imperial Bank of Commerce, Alberta Investment Management Co., Caisse de depot et placement du Quebec, Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan Board, Fonds de Solidarite FTQ, Manulife Financial Corp., Dejardins Financial Group, GMP Capital Inc. and Dundee Capital Markets.)
According to the Globe and Mail and other media reports, the Maple bid is a cash and share offer with Maple valuing its offer for TMX at Cdn. $3.7 billion ($2.5 billion in cash with the balance in Maple shares or Cdn. $33 cash per share plus Maple shares).
The launch of the rival Maple bid follows the earlier proposed friendly TMX/London Stock Exchange Group (LSE) merger and also follows in the wake of a recently abandoned joint bid by the NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. last month to acquire the NYSE Euronext, following a decision by the U.S. Department of Justice to block the transaction (see: NASDAQ OMX and IntercontinentalExchange Abandon Acquisition of NYSE Euronext).
In the failed NASDAQ/NYSE transaction, it appears from public statements by U.S. regulators that their concerns included overlap in several relevant markets, including stock listing services, stock auction services (used at the open and close of trading and periodically during market imbalances) and trade reporting facilities (used for the reporting of stock trades occurring outside of a stock exchange).
It is not yet clear whether the Maple hostile bid for the TMX will raise substantive competition law issues for the Bureau of the kind that resulted in the failed NASDAQ/NYSE transaction, or for the parties to the Maple/TMX transaction to avoid the imposition of remedies if successful.
Potential competition concerns include Alpha/TMX overlap in trading or market information services (five Maple investors have existing holdings in Alpha), Alpha having been described as “the TMX’s biggest domestic competitor” and “Canada’s main alternative trading platform” in the stock trading market. The TMX itself described Alpha in its 2010 Annual Report as having posed the “largest competitive impact” on its trading business.
The integration of CDS, which handles the clearing of share trades and is Canada’s major stock clearing facility, with the TMX may also raise potential issues, based either on overlap with existing TMX clearing services or possible impacts on non-Maple investor customers. In this regard, Maple’s bank investors and the TMX hold interests in CDS.
In this regard, existing remaining competition is a key substantive factor for the Competition Bureau in merger review under the Competition Act (see: Competition Bureau, Merger Enforcement Guidelines).
It also remains to be seen whether the proposed entry of Alpha in the listing services market will be a concern for the Bureau – i.e., whether the Bureau may see the Alpha/TMX merger as essentially removing a potential new entrant.
Having said that, unlike some other major jurisdictions including the U.S. and EU, fully contested merger proceedings are generally speaking rare in Canada with most substantive issues being resolved through negotiated settlements with the Bureau – i.e., through the imposition of structural or behavioural remedies to alleviate competition law concerns (see: Competition Bureau, Information Bulletin on Merger Remedies in Canada).
Potential remedies in this case, in the event the Maple bid is successful, may include the divestiture of the Maple investors’ holdings in Alpha. If significant competition concerns are raised, “behavioural” remedies may also be possible – for example, steps to alter the Maple investors’ representation on the Alpha board or control provisions in Alpha shareholder agreements.
According to some media reports, Maple has in fact indicated that it may be willing to divest its interests in Alpha and CDS to obtain regulatory approval for the transaction.
With respect to the timing for the proposed transaction, the parties will be subject to an initial 30 day waiting period for a review of the transaction during which the Bureau may request additional information extending its review to a second phase review (or a timing agreement negotiated between the parties extending the time for the Bureau’s review, without the issuance of an additional information request).
The Wall Street Journal has reported that the Competition Bureau has issued a no action letter in the proposed TMX Group Inc. / London Stock Exchange Group plc transaction.
According to the parties, the issuance of the no action letter satisfies the condition of their February 9th, 2011 merger agreement. For the TMX Group news release see:
TMX Group – London Stock Exchange Group Proposed Merger Receives Clearance from Competition Bureau
Under the Competition Act, merging parties may complete a proposed transaction that is notifiable when: an ARC is received (the strongest form of pre-merger clearance under the Act, typically issued in non-complex transactions where there are few or no issues); a “no action letter” is received, stating that the Commissioner does not at that time intend to seek a remedial order from the Competition Tribunal; or the applicable statutory waiting period has expired.
As a result of recent amendments, however, the Bureau may still challenge a transaction where a no action letter is issued (or the applicable statutory waiting period has expired, allowing the merging parties to complete) for up to one year post-closing.
For more information about Canada’s merger control rules see:
West webinar: West LegalEdcenter – A Guide to Canadian Competition Law for Trade and other Associations.
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Workshop, Amendments to the Competition Act & Current Issues, British Columbia Real Estate Association, Instructors Development Workshop, Whistler.
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Competition law and trade associations presentation, for a major British Columbia trade association.
Lunch and learn seminar, Canadian Competition Law, Vancouver business law boutique.
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Competition law compliance seminars for BC trade associations, Competition Act amendments.
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Adjunct professor, Competition Law, University of British Columbia, Faculty of Law.
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On May 23, 2011, the U.S. Department of Justice announced that it had filed a lawsuit to block H&R Block Inc. from acquiring TaxAct based on concerns that the proposed transaction would further consolidate the “growing U.S. digital do-it-yourself tax preparation software market” from 3 to 2 and eliminate a maverick (TaxAct).
In making the announcement, the U.S. DoJ said:
“’The combination of H&R Block and TaxACT would likely lead to millions of American taxpayers paying higher prices for digital do-it-yourself tax preparation products,’ said Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. ‘In addition, TaxACT has aggressively competed in the digital do-it-yourself tax preparation market with innovations such as free federal filing. If this merger is allowed to proceed, that type of innovation will be lost.’
…
According to the department’s complaint, H&R Block’s acquisition of 2SS Holdings would eliminate a company that has aggressively competed with H&R Block and disrupted the U.S. digital do-it-yourself tax preparation market through low pricing and product innovation. By ending the head-to-head competition between TaxACT and H&R Block, American taxpayers would be left with only two major digital do-it-yourself tax preparation providers. This would lead to higher prices, lower quality, and reduced innovation. In addition, by taking control of the TaxACT business, which has been a maverick in the market, it would be easier for H&R Block to coordinate on prices, quality, and other business decisions with the other remaining industry leader – Mountain View, Calif.-based Intuit, which makes personal finance programs such as Quicken and TurboTax – the department said.”
This case is interesting in that in addition to considering market shares and existing remaining competition (according to the DoJ, the top three players including H&R Block and TaxAct account for about 90% of the relevant market), the DoJ is basing its challenge on the fact that in its view TaxAct is also a maverick. Like the U.S., in Canada whether a merging party is a maverick can also be a relevant factor for considering whether competition will be substantially lessened post-merger (though, not surprisingly, whether a party is a maverick can be the subject of considerable debate and maverick cases are relatively rare). In this regard, the Competition Bureau states in its Merger Enforcement Guidelines:
“Pre-merger, effective coordination may be constrained by the activities of a particularly vigorous and effective competitor (a ‘maverick’). An acquisition of a maverick may remove this constraint on coordination by reducing incentives to behave in an aggressive manner. Such an acquisition increases the likelihood that coordinated behaviour will be effective.”
This case is also interesting, if only for being a cautionary tale, in that the DoJ is basing its challenge of the proposed transaction in part on the merging parties’ own internal documents. According to the DoJ, these include statements from H&R Block’s internal emails and presentations that a primary benefit of acquiring TaxAct is “elimination of a competitor” and the “strategic opportunities” include to “eliminate the brand to regain control of industry pricing and further price erosion”.
Given that “4c documents” are a routine and required part of merger notification in the U.S., and that strategic planning documents are also now required for merger notification filings in Canada regardless of complexity (see Notifiable Transactions Regulations, 16(1)(d)),[1] merging parties are well advised to seek competition/antitrust counsel early in the planning stages of a proposed transaction to avoid similar potential issues from arising.
For the complete DoJ news release see: Justice Department Files Antitrust Lawsuit to Stop H&R Block Inc. From Buying TaxAct.
For Canada’s merger control rules see: Competition Act, Part IX – Notifiable Transactions and Notifiable Transactions Regulations.
For an overview of merger control in Canada see: Merger Control and Investment Canada.
[1] Subparagraph 16(1)(d) of the Notifiable Transactions Regulations requires that parties to a transaction, and their affiliates, file “all studies, surveys, analyses and reports that were prepared or received by an officer or director of the corporation … for the purpose of evaluating or analysing the proposed transaction with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into new products or geographic regions …” This requirement to file strategic planning documents as part of a pre-merger notification filing was recently added to the Canadian Notifiable Transactions Regulations as part of amendments to the Competition Act in 2009, and further aligns Canadian merger control rules with that in the U.S. under the HSR Act (the existing 4c documents requirement).
The U.S. Department of Justice announced today that the NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. have abandoned their joint bid to acquire NYSE Euronext, following a decision by the U.S. DoJ to block the transaction.
In making the announcement, Christine Varney, Assistant Attorney General in charge of the DoJ’s Antitrust Division said:
“The companies’ decision to abandon their bid for NYSE Euronext eliminates the competitive concerns developed during our investigation. … The acquisition would have removed incentives for competitive pricing, high quality of service, and innovation in the listing, trading and data services these exchange operators provide to the investing public and to new and established companies that need access to U.S. stock markets.”
Like Canada, transactions in the U.S. exceeding certain monetary thresholds are required to be pre-notified and obtain regulatory approval. In Canada, the pre-merger notification provisions of the Competition 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 Competition Bureau.
Substantive Competition/Antitrust Concerns
It appears from the DoJ’s announcement that its concerns were based on overlap in several relevant markets, including for corporate stock listing services in the United States. According to the U.S. DoJ, the NYSE and NASDAQ are “effectively the only companies providing corporate stock listing services in the United States.”
In this regard, NYSE owns the New York Stock Exchange, the oldest stock exchange in the United States, while NASDAQ operates the NASDAQ Stock Market, the NASDAQ OMX BX (previously the Boston Stock Market) and the NASDAQ OMX PSX (previously the Philadelphia Stock Exchange).
Other relevant markets that appear to have been a concern for the DoJ included stock auction services, used at the open and close of trading and periodically during market imbalances, and trade reporting facilities, used for the reporting of stock trades occurring outside of a stock exchange, which according to the DoJ would have given the merged entity a monopoly post-merger (i.e., the NYSE and NASDAQ are currently the only two entities competing to collect this data).
For the DoJ news release see: Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. Abandon Their Proposed Acquisition of NYSE Euronext After Justice Department Threatens Lawsuit.
For the Assistant Attorney General’s remarks see Remarks of Assistant Attorney General Christine Varney.
Maple Group Launches Rival Bid for TMX Group Inc.
The decision by NASDAQ OMX and IntercontinentalExchange to abandon their bid for the NYSE comes at the same time as a second rival bid has been launched by Maple Group Acquisition Corp. to acquire the TMX Group Inc. (see: TSX Will Prosper, Canadian Bidders Say). The London Stock Exchange Group PLC had already proposed a merger with the TMX worth about $40 a share.
While spokespersons for the rival bidder, a consortium of nine banks and pension funds, have been downplaying the regulatory approvals required for the bid, and in particular merger clearance, it is not clear that sufficient existing competition will remain to avoid behavioural or structural merger remedies being imposed if the rival bid is ultimately successful.
Existing remaining competition is both a substantive factor for merger review under the Competition Act and a key factor for the Competition Bureau in its review of proposed mergers (see for example the Bureau’s Merger Enforcement Guidelines).
In this regard, potential overlap includes the Alpha Group (a new trading system that may be seen as competing and overlapping with the TMX) and CDS Inc. (that handles the clearing of share trades).
On the other hand, the reality is that, unlike some other jurisdictions, fully contested mergers are rare in Canada with most substantive issues being resolved by way of negotiated settlements (i.e., remedies imposed by the merging parties) (see e.g., the Competition Bureau’s Information Bulletin on Merger Remedies).
Potential remedies in this case could include behavioural remedies partitioning existing bank-owned competing exchange facilities from the TMX or the divestiture of some existing bank-owned exchange assets.
One interesting aspect that will remain to be seen is whether existing bank-owned trading assets are seen as merely an incremental addition to the TMX share or whether any such assets are seen as a sufficiently vigorous new entrant as to pose more serious competition law concerns for the Bureau.
For more information about Canadian merger control see: Merger Control, Merger Control FAQs and Investment Canada.
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