Archive for the 'Mergers' Category
January 2, 2014
On my daily media sweep earlier today, this interesting Competition Bureau contribution to an OECD study on competition and gasoline caught my eye (OECD Policy Roundtables – Competition in Road Fuel (2013)). Given Canadian consumers’ apparent continued consternation with gas prices, this is a fairly interesting and timely read I thought.
February 27, 2013
Earlier this week, the Federal Court of Appeal released the public version of its reasons in a decision upholding the Competition Tribunal’s decision ordering divestiture in the contested BC Tervita hazardous landfill merger.
The decision is noteworthy on a number of counts, including for being the first fully contested merger proceeding in over ten years, being a relatively rare example of a “prevent” merger case (the Commissioner may challenge mergers in Canada under the Competition Act where they may either prevent or substantially lessen competition in a relevant market) and for the Federal Court’s views on the application of the Competition Act’s efficiencies defence.
In the midst of sledding through this rather blanching FCA judgment – some 60 plus pages (see: here) – I somewhat fortunately received this quite good, short Davies note on the case and its implications in my inbox. So, I’m cheating slightly here (albeit with permission). Overview:
“On February 25, 2013, the Federal Court of Appeal (“FCA”) released the public version of its decision upholding the Competition Tribunal’s order requiring Tervita (formerly known as CCS Corporation) to divest the Babkirk hazardous waste landfill site following its acquisition of Complete Environmental Inc. The case is the first fully contested proceeding under the merger provisions of the Competition Act in over a decade.
The FCA considered whether the Tribunal was justified in finding that the merger resulted in a substantial prevention of competition and that the efficiencies claimed by Tervita were not greater than and would not offset the anticompetitive effects of the transaction.
Among other things, the decision: endorses the Tribunal’s approach to determining whether the merger resulted in a substantial prevention of competition; states that the proper timeframe to consider in determining whether a merger results in a substantial prevention of competition will generally be assessed in relation to the period of time required for a new entrant to enter into the market; and clarifies that the proper methodology for applying the Act’s efficiencies defense involves as objective an analysis as is reasonably possible, although this approach may still consider qualitative factors that cannot be quantified.”
February 11, 2013
Earlier today, the Competition Bureau announced that the Federal Court of Appeal has dismissal the appeal from the Competition Tribunal’s decision in the CCS B.C. hazardous waste landfill merger case (see: here). In making the announcement, Canada’s Interim Commissioner of Competition John Pecman said:
“We are pleased that the Court has dismissed Tervita’s appeal with costs and upheld the Tribunal’s order. … If the acquisition had been allowed, Tervita would have been in a position to entrench its monopoly on secure hazardous waste disposal in Northeastern British Columbia.”
The Bureau initially filed an application with the Tribunal in 2011 to challenge this non-notifiable merger, arguing that the transaction, if it proceeded, would result in a substantial prevention of competition in the market for the disposal of hazardous waste in Northern British Columbia (the case was a “prevent” merger case).
The Competition Tribunal’s Decision
In May, 2012, the Tribunal ordered CCS to divest the Babkirk hazardous waste landfill assets acquired by CCS Corporation (now Tervita) from Complete Environmental. For a summary of the Tribunal’s decision last year see: Competition Tribunal Releases Decision in BC Landfill “Prevent” Merger Case.
In brief, on May 29, 2012, the Tribunal concluded that the acquisition by CCS of the shares of Complete substantially prevented competition and ordered CCS to divest Complete’s wholly-owned subsidiary Babkirk. The divestiture order was stayed pending appeal to the Federal Court of Appeal, which was heard last December. Tervita is the owner of the only operating secure landfills in North-Eastern British Columbia permitted to accept solid hazardous waste. These landfills primarily service oil and gas industry operators seeking to dispose of materials generated through drilling activities. Babkirk had secured regulatory approvals for development of a further secure hazardous waste landfill.
January 30, 2013
Earlier today, Canada’s Interim Commissioner of Competition John Pecman delivered remarks in Montreal on the Competition Bureau’s current activities and priorities. In this, Mr. Pecman’s third speech since taking over from the former Commissioner (see previous speeches here and here), he discussed the Bureau’s use of section 11 orders, consent agreements, misleading advertising, cartels and its work with Quebec’s anti-corruption unit.
Some of the aspects of the Interim Commissioner’s remarks that I found interesting included confirming work to develop price maintenance guidelines and updated FAQs for the Bureau’s Leniency Program and announcing that the first course of action to obtain information from targets in formal inquiries in non-merger cases (except in exceptional cases) will be through section 11 court orders.
With respect to the Bureau’s sterner and increased use of section 11 orders, the Interim Commissioner indicated that the Bureau’s new approach had stemmed from an increased frustration with obtaining complete and timely information through voluntary information requests. Where the Bureau has commenced a formal inquiry, it may request information voluntarily or compel production through section 11 orders or through the use of search warrants. Also, as with the Bureau’s increased enforcement stance in other areas, notably cartels, the Interim Commissioner emphasized a desire in his section 11 related remarks today for the Bureau to use all of the tools Parliament had provided in the Competition Act.
January 24, 2013
Steve Szentesi
Kevin Wright (Davis LLP)
(with contributions by Jonathan Gilhen – Davis LLP)
Extract from a chapter to be published in CLEBC’s
Annual Review of Law & Practice – 2013
____________________
2012 was a busy year for Canadian competition and foreign investment law, with significant developments in all major areas including misleading advertising, mergers, abuse of dominance, criminal matters (including cartels, bid-rigging and deceptive marketing) and private actions. The following is an overview of some of the key merger and Investment Canada Act developments (with summaries of other significant developments in 2012 to come over the next few days).
MERGERS & INVESTMENT CANADA ACT
CCS
On May 29, 2012, the Competition Tribunal (the “Tribunal”) concluded that the acquisition by CCS Corporation (subsequently renamed Tervita Corporation) of the shares of Complete Environmental Inc. substantially prevented competition and ordered CCS to divest the shares or assets of Complete’s wholly-owned subsidiary Babkirk Land Services Inc. (“Babkirk”). The divestiture order was stayed pending Tervita’s appeal to the Federal Court of Appeal, which was heard on December 10 and 11, 2012.
CCS is the owner of the only two operating secure landfills in North-Eastern British Columbia (“NEBC”) permitted to accept solid hazardous waste. These landfills primarily service oil and gas industry operators seeking to dispose of materials generated through drilling activities. Babkirk had secured regulatory approvals for development of a secure hazardous waste landfill in NEBC.
On January 7, 2011, CCS acquired the shares of Complete from five individuals for just over $6 million. The acquisition fell well below the financial thresholds for mandatory pre-closing notification to the Competition Bureau (the “Bureau”). On January 24, 2011, the Commissioner of Competition (the “Commissioner”) filed an application with the Tribunal seeking a remedy under the merger provisions of the Act. Although Babkirk had not yet constructed a landfill, the Commissioner contended that the acquisition was a merger that prevented, or was likely to prevent, competition substantially by eliminating the only likely imminent competitor for secure landfill services in NEBC. The vendors were also named as respondents since the Commissioner sought an order to dissolve the acquisition. Normally the Bureau’s preferred merger remedy is divestiture by the purchaser.
Following a hearing in late 2011, the Tribunal concluded that the acquisition was a “merger” that “… was more likely than not to maintain the ability of CCS to exercise materially greater market power” and which was “likely to prevent competition substantially.” The Tribunal rejected CCS’s defence that the merger was likely to achieve efficiencies that outweighed any anti-competitive effects. However, the Tribunal held that the Commissioner’s proposed dissolution remedy would be overbroad, intrusive and less effective and ordered divestiture instead.
The Commissioner is normally selective in bringing contested merger cases, with the CCS case being only the 6th contested merger decided by the Tribunal since 1986. The case reinforces that the Commissioner may pursue any merger, including one that is localized or is relatively small in terms of deal size, for up to one year after closing. The case provided an opportunity for the Tribunal to articulate its approach to an alleged prevention (as opposed to a lessening) of competition and for the application of the efficiencies defence under section 96 of the Act.
The decision illustrates that in a prevent case, an order can issue even where the parties did not expect to compete but for the merger. Here, the Tribunal found that although the vendors had intended to operate the Babkirk site as a bioremediation facility primarily, eventually they would have abandoned that plan and they (or new owners) would have competed with CCS directly by landfilling. The Tribunal also ruled that the concept of “merger” is broad and includes the acquisition of non-operational assets obtained in the development of a business.
Investment Canada Act
In January 2013, Industry Canada announced that the threshold under the Investment Canada Act for required advance review of most direct foreign acquisitions (involving investors or purchasers from WTO-member states) of control of Canadian businesses increased from $330 million to $344 million.
New SOE Guidelines
On December 7, 2012, the Minister of Industry announced that the $15.1 billion acquisition of Nexen Inc. by China National Offshore Oil Co. (“CNOOC”) and the $6 billion acquisition of Progress Energy Resources Corp. (“Progress”) by Malaysia’s Petronas had been approved under the Investment Canada Act. The approvals of these takeover bids come after the Canadian government’s rejection in 2010 of the proposed acquisition by BHP Billiton PLC of PotashCorp, which had left some observers with the impression that Canada was growing increasingly hostile to foreign investment.
Concurrently with announcing the approval of the Nexen/CNOOC and Progress/Petronas transactions, the Canadian government announced revisions to Canada’s foreign investment guidelines, which are intended to clarify the review process for investments by foreign state-owned enterprises (“SOEs”).
Under the Investment Canada Act, certain large foreign investments to acquire control of a Canadian business that exceed specified financial thresholds are subject to a review by the Minister to determine whether the transaction is likely to be of “net benefit to Canada” based on six, largely economic, factors (“net benefit to Canada” test) In addition to the review factors enumerated in the Investment Canada Act, the new SOE Guidelines outline key considerations in determining whether a proposed investment by an SOE will be of net benefit to Canada. While the “net benefit to Canada” test will still apply, the government will look at such factors as the governance and commercial orientation of the acquirer, the degree of foreign state control or influence over the acquirer, the extent to which the acquirer conforms to Canadian standards of corporate governance (such as transparency and disclosure), adherence to free market principles, and the likelihood that the new enterprise will operate on a commercial basis.
In the new SOE Guidelines, the definition of an SOE has been expanded to include not only entities owned by a foreign state, but also entities that are directly or indirectly owned, controlled, or influenced by a foreign government, potentially creating uncertainty as to when the new SOE policy regime applies.
The Minister will monitor SOE transactions throughout the Canadian economy, with a specific focus on three factors: (a) the degree of control or influence a state-owned enterprise would likely exert on the Canadian business that is being acquired; (b) the degree of control or influence a state-owned enterprise would likely exert on the industry in which the Canadian business operates; and (c) the extent to which a foreign state is likely to exercise control or influence over the state-owned enterprise acquiring the Canadian business.
The new SOE Guidelines will also target investments in the Canadian oil sands. In the future, acquisitions by foreign SOEs of Canadian oil sands companies will only be found to be of net benefit to Canada on an “exceptional basis”. This approach marks a departure from the former SOE Guidelines, which did not identify specific industries or assets that are considered more sensitive than others.
Finally, the previously announced amendments (that had yet to be implemented) to the Investment Canada Act to increase progressively the financial thresholds for a review of investments by WTO non-SOE foreign investors from $330 million (in 2012) to $1 billion in enterprise value will not apply to proposed takeovers by SOEs, which will remain at $330 million, adjusted annually, based on the book value of assets (not enterprise value).
Monthly Merger Reports
In an effort to increase transparency in its merger review process, in February 2012 the Bureau announced that it would begin publishing on its website a monthly list of completed merger reviews (“Merger List”). The Merger List will list all mergers for which a pre-merger notification was made under section 114 of the Act, a request was made for an advance ruling certificate under section 102, or both, and will also set out the names of the parties to the merger, the industry sector involved and the result of the review by the Bureau, being: (i) “ARC”, signifying issuance of an advance ruling certificate; (ii) “NAL”, signifying the issuance of a “no action letter”, which is a letter from the Commissioner confirming that he does not, at that time, intend to make an application under section 92 of the Act in respect of the merger (or proposed merger); (iii) “CA”, signifying the registration of a consent agreement with the Tribunal; and (iv) “JD”, signifying a judicial decision in respect of the merger (or proposed merger).
Prior to the Bureau’s official announcement, some stakeholders raised concerns with the publication of the Merger List, primarily on the basis that information provided by parties to the Bureau pursuant to the Act is subject to statutory confidentiality obligations under section 29, which does not have an express exception to permit such publication. Notwithstanding the concerns raised by stakeholders, the Bureau commenced publication of the Merger List in February 2012.
January 9, 2013
The Competition Bureau has announced that the pre-merger notification size of transaction threshold for 2013 has been increased to $80 million (increased from the previous $77 million). The new size of transaction threshold will come into effect on publication in the Canada Gazette.
Mergers are notifiable in Canada where they involve the acquisition of an operating business in Canada, are one of five specified types of transactions set out in the Competition Act, exceed the prescribed thresholds under the Act and do not fall within any exception. With respect to pre-merger notification thresholds, a transaction must exceed both the “size of parties” and “size of transaction” thresholds.
January 5, 2013
Industry Canada announced that it is expected that the Investment Canada Act review threshold for WTO investors or vendors will be Cdn. $344 million for 2013 (to be published in the Canada Gazette in early 2013). The threshold is indexed annually to reflect GDP growth. For more information about the Investment Canada Act and Canada’s foreign investment rules see: Investment Canada, national security, state-owned-enterprises (SOEs).
January 4, 2013
Earlier today, the U.S. Federal Trade Commission issued a new report summarizing its reviews of horizontal mergers between 1996 and 2011 (see: Horizontal Merger Investigation Data: Fiscal Years 1996-2011).
Overview:
“To promote transparency in merger enforcement, Federal Trade Commission staff1 reviewed the horizontal merger investigations that the agency conducted during fiscal years 1996 through 2011 and compiled relevant data for public release. The information presented in the attached tables has been extracted from staff memoranda written at the time of each investigation to advise the Commission regarding its enforcement decision. The staff has tabulated certain market structure information along with the Commission’s decision whether or not to seek relief in the specific markets investigated. In addition, for a subset of these investigations (those with three or fewer markets), the staff also tabulated the Commission’s enforcement decisions based on the presence or absence of ‘hot documents,’ ‘strong customer complaints,’ and ‘entry conditions’ as they were identified during the investigation.
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
