Archive for the 'Mergers' Category
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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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:
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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
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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:
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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.
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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
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Templates/precedents and checklists to run promotional contests in Canada
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