On April 10, 2012, the Competition Bureau issued a statement summarizing its review of the acquisition of Quad/Graphics Canada, Inc. by Transcontinental Inc. (a printing merger involving the retail flyer market).
The Bureau’s announcement is part of its recent initiative to increase the transparency of its merger review process, which has included the launch of a new Monthly Report of Concluded Merger Reviews (launched earlier this year with some controversy from the competition bar), new Merger Enforcement Guidelines (“MEGs”) (which govern the Bureau’s substantive review of mergers in Canada), new Merger Review Process Guidelines (reflecting the Bureau’s experience with Canada’s new two-stage merger review process since it was introduced in March, 2009) and recent public remarks by the Commissioner.
With respect to merger review summaries in particular, the Commissioner announced that the Bureau would be launching summaries of some of its merger reviews in recent public remarks:
“Among other initiatives, I am pleased to announce that, following the recommendations of an internal working group on transparency, we intend to publish more position statements that describe the Bureau’s analysis of complex merger cases, and to establish a merger register — a list of all closed merger reviews, updated on a monthly basis.”
While the Bureau had previously been issuing Technical Backgrounders for completed merger reviews, the Bureau discontinued that practice in 2009.
In the Bureau’s Quad/Graphics-Transcontinental merger review statement, the Bureau states that it issued a No Action Letter (“NAL”) to Transcontinental, based on factors including increased foreign (U.S.) competition in the relevant retail flyer market.
According to the Bureau, while it concluded that there was increased concentration in Canada, “U.S. printers with printing facilities located in close proximity to the Canadian border … are imposing competitive discipline on the retail flyer market in Canada.”
Foreign competition is one of the factors in section 93 of the Competition Act that the Competition Tribunal may consider in determining whether a merger may prevent or lessen competition substantially (the test for substantive review of mergers in Canada). In its revised MEGs, the Bureau takes the position that section 93 factors “may be relevant to the Bureau’s assessment of market definition or of the competitive effects of a merger” and also discusses its position as to when foreign competition will be considered to be included in the relevant geographic market:
“Buyers’ willingness or ability to turn to foreign sellers may be affected by buyers’ tastes and preferences, and by border-related considerations. Buyers may be less willing or able to switch to foreign substitutes when faced with factors such as exchange rate risk, local licensing and product approval regulations, industry-imposed standards, or initiatives to ‘buy local’ owing to difficulties or uncertainties when crossing the border. Conversely, buyers may be more willing to turn to foreign substitutes when they have ample information about foreign products and how to source them, when foreign sellers or their products have already been placed on approved sourcing lists, or when technology licensing agreements, strategic alliances or other affiliations exist between domestic buyers and foreign firms.
When it is clear that the sales area of the merging parties and that of foreign sellers both belong in the relevant market (because sufficient buyers would be willing to respond to a SSNIP by turning to these sellers), the boundaries of the market are expanded beyond Canada to include the locations of foreign sellers.”
In the Quad/Graphics-Transcontinental transaction, the Bureau concluded that the relevant markets were local, based on the downstream customers’ (Canadian retailers) preference for short production cycles for printed flyers (with U.S. suppliers competing in those local markets).
Interestingly, the Bureau also stated that it would monitor competition in the retail flyer market for one year. The Bureau may challenge mergers where a NAL is issued, unlike where an Advance Ruling Certificate is issued, for up to one year post-completion.
For the Bureau’s statement see:
Competition Bureau Statement Regarding Transcontinental’s Acquisition of Quad/Graphics Canada
For about Canadian merger control and foreign investment rules see:
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