Archive for the 'Mergers' Category
December 27, 2012
I’ve been thinking lately about writing a short note on Competition Act remedies and how the Act can be used as a strategic tool, partly from working on a few recent files with general commercial counsel who tend to ask: “what will we get and how do we get there using competition law”?
I’ve also grown to think of the Competition Act over the past few years as a collection of tools that can be used for strategic purposes (e.g., in settlement negotiations) or in an effort to achieve certain types of remedies for clients. In other words, thinking about remedies first and the best types of competition law tools to get there.
So, with that said, the following is a short overview of Competition Act penalties and remedies (and a few of the ways the Act can be used as a strategic tool, either on its own or with other proceedings or strategies):
1. As a general matter, the Competition Act contains both civil provisions and criminal offences, and so the potential penalties/remedies vary considerably depending on the particular provision and whether a criminal offence or civil reviewable matter.
2. Competition Bureau complaints are possible under all of the provisions of the Act, by consumers or competitors (and may be filed in a number of ways).
3. Under the criminal offences of the Act (e.g., criminal conspiracy agreements, bid-rigging, deceptive telemarketing, etc.), potential penalties include fines and/or imprisonment. The Bureau also sometimes seeks so-called “prohibition orders” for conduct to stop, which is one peculiar feature and remedy available to the Bureau.
December 11, 2012
The Canadian Council of Chief Executives (CCCE) and School of Public Policy (University of Calgary) hosted a half-day Canada in the Pacific Century conference on December 10th (see: Canada in the Pacific Century), as part of its series on Canada/Asia trade.
The CCCE has now uploaded slides and videos from the conference – see: webcast of “Canada in the Pacific Century”.
Conference overview:
“Asia’s rise is the single most important force transforming the global economy at the beginning of the 21st century. Rapid urbanization and the expected doubling of the world’s middle class will have far-reaching consequences, from unprecedented demand for food, energy and other resources, to a reshaping of the multilateral trading system. Countries and companies that adapt successfully to these changes can expect to prosper and grow; others will be left behind. On behalf of the Canadian Council of Chief Executives, thank you for participating in this conference series on Canada’s economic prospects in a rebalanced global economy.”
December 7, 2012
Earlier today, the Federal Government announced that it was granting Investment Canada Act approval for China National Offshore Oil Company’s (CNOOC) acquisition of Nexen Inc. and PETRONAS’ acquisition of Progress Energy (see: here and here).
With respect to CNOOC/Nexen, the Minister of Industry emphasized CNOOC commitments relating to governance, commercial orientation and free market principles as factors for approving the transaction:
“To demonstrate that the transaction is likely to be of net benefit, CNOOC has made significant commitments to Canada in the areas of: governance, including commitments on transparency and disclosure; commercial orientation, including an adherence to Canadian laws and practices as well as free market principles; and employment and capital investments, which demonstrate a long-term commitment to the development of the Canadian economy. A compliance report related to the undertakings will be provided to Industry Canada annually.”
As anticipated, at the same time the Government also released a new Policy Statement and revised State-Owned-Enterprise Guidelines (Investment by state-owned enterprises – Net benefit assessment) for net benefit to Canada reviews of investments by SOEs that amend Guidelines first issued in 2007.
Some of the key changes (and shifts in policy) that struck me on my review of the new SOE Guidelines and Policy Statement include:
1. The Federal Government sending a clear signal that acquisitions of control by SOEs in Canada’s oil sands will be found to be of net benefit to Canada only on an “exceptional basis”. When questioned in an interview following the announcements, the Prime Minister did not amplify on what circumstances may satisfy this test.
2. More formal monitoring of SOE transactions (which is consistent with an increased desire by the Government generally to ensure that Investment Canada Act undertakings are fulfilled).
3. Increasing the scrutiny on the level of control by a foreign state (to include the control or influence of the SOE over the business and relevant industry, as well as the control/influence of the foreign state over the SOE). In this regard, the definition of SOE in the Guidelines has been expanded to include “influence” in addition to ownership and control (the Investment Canada Act does not define SOE).
4. Distinguishing between reviews for acquisitions of control from minority investments including joint ventures (the latter “continuing to be welcome”, while the former will be cleared only on an “exceptional basis”).
November 27, 2012
The C.D. Howe Institute published a new report on the Canadian Investment Canada Act and state-owned enterprises (SOEs): Speed Dating or Serious Courtship? Canada and Foreign State-Owned Enterprises. Abstract:
“If Canada wants to benefit from Asia’s long-term growth potential, there is no getting around the need to do business, carefully, with state-owned enterprises (SOEs), according to a report released today by the C.D. Howe Institute. In ‘Speed Dating or Serious Courtship? Canada and Foreign State-Owned Enterprises,’ author Daniel Schwanen discusses how Canada can address concerns about the potential impacts of investment by foreign SOEs in Canadian companies.”
For a copy of the C.D. Howe Institute’s new report see: Speed Dating or Serious Courtship? Canada and Foreign State-Owned Enterprises.
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In the most noteworthy Canadian competition/antitrust law development today, the Competition Bureau announced that a settlement (consent agreement) had been reached in this case, one of two contested mergers in the past few years in Canada (together with the recent CCS hazardous landfill case which was recently decided by the Competition Tribunal and is currently on appeal).
This case, which was to scheduled to be heard in early November before the Competition Tribunal (see: here and here) was noteworthy for being one of only two contested mergers currently underway in Canada and for representing the first challenge, if it had proceeded, of agreements (in this case joint venture agreements between Air Canada and Continental) under Canada’s recently enacted civil agreements provision of the Competition Act (section 90.1 – which, together with section 45, comprises Canada’s new two-track conspiracy/cartel regime).
The Bureau had been challenging three existing Air Canada / Continental “coordination agreements” under section 90.1 of the Competition Act, under which the Bureau can apply to the Competition Tribunal for remedial orders where agreements between competitors prevent or lessen (or are likely to prevent or lessen) competition substantially in one or more relevant markets.
There has not yet been a contested section 90.1 case since this new “civil agreements” provision came into force (which is thought may apply to a range of commercial agreements that, while they may not constitute “hard core” cartel type agreements under section 45 of the Act – i.e., price-fixing, market division/allocation and output restriction agreements – may nevertheless prevent or lessen competition substantially in some cases).
While it is thought that the new section 90.1 may apply, in some instances, to joint venture, franchise, licensing, information exchange and research and development agreements, among others, where competition is substantially impacted, the boundaries of section 90.1 now remain as yet unknown and untested.
Last week the CRTC announced that it was denying BCE’s proposed acquisition of Astral, late Friday night the Federal Government announced that it was opposing Petronas’ proposed acquisition of Progress Energy, then late this afternoon, as anticipated, BCE announced it was asking the Federal Cabinet to issue a policy direction under the Broadcasting Act directing the CRTC to follow its policies for change of control broadcasting transactions. In making its announcement BCE said:
“In rejecting the Astral transaction the CRTC rejected its own established policies, creating serious regulatory uncertainty in Canada’s vital broadcasting sector … We’re requesting that Cabinet provide the required guidance to the CRTC to follow its own rules in place, with which the Astral-Bell transaction fully complied.”
Canadian and international firms, it seems, are growing restless with the Federal Government and regulatory agencies determining which deals clear and which are blocked, and related tests (in one instance net benefit to Canada the other a public interest test).
On the other hand, these recent transactions raise important questions about the appropriate factors that should underlie acquisitions of major broadcasting undertakings by market leaders and significant investments in Canada by foreign governments. These include market and consumer effects, choice, security issues and the level of real reciprocal investment. Canadian shareholders and funds want payouts and the free movement of capital and confidence in Canadian capital markets are all highly legitimate concerns, but these decisions have shown (through public opinion and, in the case of the BCE/Astral transaction, through extensive public hearings) that the ability to move capital is not the only concern to Canadians.
In the case of the BCE/Astral deal, one of BCE’s primary arguments has been that it needs scale and size to better compete with global rivals. But what of Canadian consumers facing less competition yet in one of the most concentrated media markets in the world? The CRTC’s Chairman stated during the public hearings that he had spent his summer holiday reading negative comments about the proposed BCE/Astral transaction. Should negative (and allegedly biased and partisan) comments trump CRTC policy?
Of course, more oversight could cure market power concerns (like the OSC’s promised regulation of Canada’s leading securities exchange).
“Is everything sacred in Canada? At first it was a hole in the ground. Then it was the stock exchange and a DIY chain. This week, regulators blocked two more big deals, including a $5.2 billion bid for Progress Energy by Petronas of Malaysia. Taken as a whole, these actions signal the market for corporate control in Canada – especially when it comes to foreign buyers – is effectively closed.”
(Slate)
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“Sources say Ottawa asked Petronas at the eleventh-hour for a delay to rule on its bid to take over Progress until Dec. 7, so it can finalize its new policy. Industry Canada, which is reviewing the transaction, had already delayed its decision once and had promised to produce a ruling by Friday.”
(Financial Post)
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“The lack of transparency is starting to reach new heights. Who releases such an important decision at midnight on a Friday? Someone who has something to hide and no way to explain.”
(NDP leader Thomas Mulcair)
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In a week of surprises that included the CRTC denying BCE’s BCE’s acquisition of Astral, late on Friday night the Minister of Industry announced that he was not satisfied that Petronas’ proposed acquisition of Progress Energy Resources was likely to be of net benefit to Canada:
“I can confirm that I have sent a notice letter to Petronas indicating that I am not satisfied that the proposed investment is likely to be of net benefit to Canada. I came to this decision after a careful and thorough review of the proposed transaction. Under the Investment Canada Act, Petronas now has up to 30 days to make any additional representations and submit any further undertakings, which can be extended with my agreement and that of the investor. Subsequently, I will either confirm this initial decision or approve the acquisition.”
While the Minister reiterated similar earlier statements by the Prime Minister and other Government officials that Canada remained open to investment (saying that the Government remained “committed to maintaining an open climate for investment”), this decision casts those statements further in doubt and, while statistically absolutely true, raises again the question of the applicable rules investors and in particular SOEs must meet.
On Sunday, on CTV’s Question Period, Canada’s Finance Minister Jim Flaherty also said that Canada “welcomes foreign direct investment” but that Petronas type bids must ultimately be “correct”.
The Petronas/Progress deal had received some, but by no means as much, attention as the pending CNOOC/Nexen deal, which has recently been extended until November to allow for a national security review.
According to media reports, Petronas refused the Government’s request for more time to review its proposed bid to acquire Progress, had grown frustrated with negotiations attempting to satisfy the Investment Canada Act’s (ICA) net benefit to Canada test and according to media sources was getting little Government input on required commitments. On October 5th the initial ICA review period had been extended (see: here).
The Minister has an initial 45 days to review proposed investments under the Investment Canada Act, which can be unilaterally extended another 30 days (with further extensions with consent of an investor). Where an investment is opposed, investors may make further submissions in an attempt to clear a transaction with further undertakings.
In a brief news release issued by Progress on Saturday, it said:
“The Board of Directors, management and employees of Progress are disappointed in the announcement. ‘Progress will be working over the next 30 days to determine the nature of the issues and the potential remedies’ said Michael Culbert, President and Chief Executive Officer of Progress. ‘The long-term health of the natural gas industry in Canada and the development of a new LNG export industry are dependent on international investments such as PETRONAS’”.
This decision is rather surprising, although it is always difficult to predict whether transactions will receive ICA clearance based on the opaque political nature of the ICA net benefit criteria and fact-specific nature of every transaction and related undertakings.
State-owned enterprises are subject to an additional layer of review in Canada under Investment Canada’s SOE Guidelines that set out additional factors (relating to the corporate governance and commercial orientation of the SOE) in addition to the general net benefit to Canada factors in section 20 of the ICA. SOEs may also be required, as is being illustrated in this case, to provide more stringent undertakings than private investors – for example, undertakings for the complete duration of a proposed investment.
“The CRTC’s well-reasoned decision to deny Bell’s application to acquire Astral addressed concerns of Canadians and consumers about the scope and impact of this transaction.”
(Canada’s largest media union,
the Communications, Energy and Paperworkers Union of Canada)
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“We commend the CRTC for this courageous decision. We believe Canadians should have fair and open access to content”
(Rogers)
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“This is a decision that should not stand. Canadian consumers were told today by the CRTC that they don’t deserve more – more choice, more competition, more Canadian content funding – all of which Bell and Astral committed to with this transaction.”
(George Cope, President and CEO of Bell Canada and BCE Inc.)
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“Evidently, this decision was taken in the best interest of not only the Canadian broadcasting system, but also in the best interest of all Canadian consumers. It demonstrates the CRTC’s desire to ensure healthy competition in the Canadian communications industry and to protect the interests of consumers.”
(Cogeco Cable Inc. CEO)
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On October 18, 2012, in a decision that to be honest surprised me a little (although perhaps it shouldn’t have), the CRTC announced that it was denying BCE Inc’s bid to acquire Astral Media Inc.
The decision is noteworthy for, among other things, its speed (public hearings had only concluded about a month ago), breadth (the decision to block the deal entirely) and a further expression of the CRTC’s apparently reinvigorated focus on the consumer. In this regard, some commentators (see e.g.: here) have noted that the decision is consistent with other recent consumer-oriented initiatives, including upcoming public consultations for a new mandatory wireless code that has started online (with public hearings scheduled to begin in the early new year) and emphasis on consumer access in the CRTC’s recently issued Three Year Plan.
Other CRTC initiatives lately also show its focus on the consumer include the first new interpretation guidelines for the upcoming anti-spam legislation issued last week (which are being criticized by some in the business sector as overly onerous to comply with and impractical in some respects) and stepped up Do Not Call List enforcement in the telemarketing area (e.g., the CRTC’s enforcement action against 85 companies for Do Not Call List violations last spring and exercising more enforcement muscle against offshore deceptive telemarketing – see e.g.: CRTC takes action against telemarketers offering anti-virus software).
In making the announcement earlier today, CRTC Chairman Jean-Pierre Blais said:
“’BCE failed to persuade us that the deal would benefit Canadians,’ said Jean-Pierre Blais, Chairman of the CRTC. ‘It would have placed significant market power in the hands of one of the country’s largest media companies. We could not have ensured a robust Canadian broadcasting system without imposing extensive and intrusive safeguards, which would have been to the detriment of the entire industry.’ The proposed transaction raised substantial concerns related to healthy competition, the concentration of ownership in the television and radio markets, vertical integration and the exercise of market power in an anti-competitive manner. The CRTC was not persuaded that the transaction would have provided significant and unequivocal benefits to the Canadian broadcasting system and to Canadians sufficient to outweigh its concerns.”
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
