Archive for the 'Mergers' Category
The American Bar Association’s Section of International Law has issued a call for articles for three upcoming issues of its International Law News on the topics of “International Anti-Bribery Compliance and Investigation” (deadline: October 22, 2012), “Diversity Challenges in the Modern World” (deadline: December 10, 2012) and “Current Issues in International Commercial Transactions (including Mergers and Acquisitions)”.
About International Law News:
“A key purpose of the Section newsletter, the International Law News, is to keep Section members informed about current international law developments and important Section news. The ILN publishes articles on breaking issues for practitioners in the international arena to assist them in gaining helpful insights into the hot issues and obtaining concrete, how-to advice on practicing international law in the marketplace. The ILN also publishes regular columns on public and private law initiatives, survival guides to cities, and pros and cons columns on breaking issues of general interest. The ILN is intended to give practitioners helpful insights and guide lines to doing business in the international arena. Articles should be short (2,000 words maximum) and comprehensible to non-specialists.”
The OECD has issued a new Policy Roundtable report entitled: Remedies in Merger Cases, which includes a discussion of Canada.
Abstract:
“Competition agencies use remedies in merger cases to eliminate any competitive harm that may result as a consequence of a merger. Generally, merger remedies are classified as either structural or behavioural (or conduct). Each of these categories has benefits and drawbacks, which must be carefully considered when deciding which type of remedy to best employ.
Horizontal and vertical mergers generally involve different competitive concerns. These differences must be taken into account when crafting an appropriate remedy. Frequently, competitive concerns in horizontal mergers can be best resolved by a structural remedy, while vertical mergers lend themselves to behavioural remedies or a combination of both.
While such generalizations may be a useful starting point, each transaction should be evaluated based on its own merits. In crafting remedies, competition agencies often seek the views of third parties in order to ensure that an optimal remedy is found.”
Publications: OECD Policy Roundtable Report: Economic Evidence in Merger Analysis – Including Canada
The OECD has issued a new Policy Roundtable report entitled: Economic Evidence in Merger Analysis, which includes a discussion of Canada.
Abstract:
“The OECD Competition Committee debated economic evidence in merger analysis in February 2011. This document includes an executive summary of that debate and the documents from the meeting: a background note by Prof. Mike Walker for the OECD and written submissions: Austria, Brazil, Canada, Chile, China, Denmark, Finland, France, Germany, Greece, Hungary, Indonesia, Israel, Japan, Korea, Mexico, Netherlands, New Zealand, Portugal, Romania, Russian Federation, South Africa, Sweden, Switzerland, Chinese Taipei, Turkey, United Kingdom, United States, the European Union, and BIAC as well as an aide-memoire of the discussion.
With the Maple/TMX and Glencore/Viterra deals beginning to quiet down now, the next Competition Act / Investment Canada Act approval dance began earlier today with announcements that China National Offshore Oil Corporation (“CNOOC”) was proposing to acquire Nexen Inc. in a friendly $15.1 billion all cash transaction ($27.50 per Nexen share). Nexen has assets in Western Canada, the U.K. North Sea, Gulf of Mexico and offshore Nigeria, including oil and gas, oil sands and shale gas production.
Canada’s Industry Minister, the Honourable Christian Paradis, confirmed that the transaction would be subject to Investment Canada Act (“ICA”) review (see: Minister Paradis Confirms China National Offshore Oil Corporation and Nexen Inc. Transaction is Subject to Review under the Investment Canada Act) and made a number of rather pro forma statements, including confirming that the transaction exceeded the WTO review threshold and setting out the net benefit to Canada criteria under the ICA. The Minister also confirmed that the Competition Bureau would be reviewing the proposed transaction.
CNOOC, in reply, in this newest ICA approval dance, began to indicate the types of commitments it may be prepared to offer to secure ICA approval, including significant capital investment, listing CNOOC Limited’s common shares on the TSX, making Calgary its head office for North and Central American operations, vowing to maintain existing management and employees (as well as increasing jobs) and accelerating resource development. According to Nexen’s press release, CNOOC also intends to continue to support oil sands research at Alberta universities and participate in the Oil Sands Innovation Alliance (COSIA) (see: CNOOC Limited Enters Into Definitive Agreement to Acquire Nexen Inc.).
The Competition Bureau has published its June Monthly Report of Concluded Merger Reviews. Advance Ruling Certificates were issued in five transactions with No Action Letters having been issued in eight transactions. Notified mergers included Glencore International plc / Xstrata plc and it appears at least one Chinese acquisition (Aluminum Corporation of China / Winsway Coking Coal).
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On July 4, 2012, the Competition Bureau announced that it had issued a No Action Letter clearing the Maple/TMX transaction (see: Competition Bureau Completes Review of Proposed Maple-TMX Transaction).
The CBA’s National Competition Law Section has posted its letter to the Parliamentary and Senate Standing Committees on Finance and National Finance commenting on the proposed amendments to the Investment Canada Act (ICA) contained in Bill C-38 (for our previous posts on the proposed Investment Canada Act changes see: here and here).
Bill C-38 would, if passed, introduce two changes to the ICA: first, the Federal Government would be authorized to accept security for payment for certain penalties under the ICA, including where undertakings had been breached; second, it would broaden the exceptions to the existing privilege protections under the ICA to allow the Minister of Industry or Canadian Heritage to publicly explain why an investor had been sent a notice under subsection 23(1) of the ICA (a preliminary notice that the Minister was not satisfied that an investment was likely to be of net benefit to Canada, the relevant substantive test under the ICA).
The Section is generally critical of Bill C-38’s “omnibus style” of legislation and lack of “meaningful comment or debate”. The Section also questions whether security payments would increase compliance with undertakings, expresses a concern about the absence of limitations or guidance in the Bill on the circumstances when security may be taken (or the nature or amount) and takes the position that the additional disclosure powers for the responsible Minister under the ICA represents an “inadequate improvement on the status quo” (a criticism echoed by many other observers). In particular, the Section is critical of the permissive nature of disclosure and recommends a requirement to give reasons for Ministerial decisions (and make them public where the Minister approves or rejects an investment).
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On June 15, 2012, the Competition Tribunal released the public version of its decision in the contested BC landfill merger case Commissioner of Competition v. CCS Corporation, allowing the Commissioner’s application and making a divestiture order.
As we wrote in our earlier post, the case, which involves the acquisition by CCS Corporation of Complete Environmental Inc. and its wholly-owned subsidiary Babkirk Land Services, is noteworthy for being the first contested merger case in Canada in six years (since 2005) and an uncommon example of a “prevent” case (mergers in Canada may be challenged under the Competition Act where they either lessen or prevent competition substantially, being the two aspects of the substantive test under section 92 of the Act). While there have been three previous prevent cases considered by the Tribunal in Canada, all of those focused on the substantial lessening aspect of the substantive test under section 92.
The Bureau’s overarching concern in this case was that the completed merger was likely to prevent competition in the hazardous waste disposal service market in the relevant market in Northern British Columbia, given that, in the Commissioner’s view, Complete was ready to enter and compete with the acquirer CCS. In this regard, Complete had obtained regulatory approvals to operate a secure landfill for hazardous solid waste.
The case is also noteworthy as an example of the Bureau’s apparent increased willingness to challenge some transactions post-closing, regardless of size, that may raise competition concerns.
In granting the Commissioner’s application, albeit with a lesser remedy than that sought by the Bureau (i.e., divestiture not dissolution), the Tribunal had some interesting things to say about the analytical framework for “prevent” cases and the competitive effects in this case (all forward looking), efficiencies and the assessment of the appropriate remedy.
A few interesting points from the Tribunal’s decision include:
Substantial Prevention of Competition
The Tribunal found that the completed merger was likely to result in a substantial prevention of competition in the market for the supply of secure landfill services, and in particular that a decrease in average tipping fees of at least 10% would be prevented by the merger.
In coming to this conclusion, the Tribunal applied a “but for” test in assessing competitive effects (i.e., comparing whether the market would, “but for” the merger, be substantially more competitive, or in the Tribunal’s words: “comparing a world in which CCS owns the relevant Secure Landfills … with a world in which Babkirk is independently operated as a Secure Landfill”).
In adopting this test, the Tribunal drew on the Federal Court of Appeal’s decision in Canada Pipe, an abuse of dominance case under section 79 of the Act, finding a parallel between the language in sections 92 (which sets out the substantive test for merger review) and 79 (abuse of dominance).
Interestingly, the Tribunal refused to rely on U.S. authorities suggested by both the Commissioner and CCS to interpret the appropriate analytical framework in a prevent case, finding that they had developed in relation to a different statutory test and were not recently decided.
Entry
In its prevent analysis, the Tribunal held that it should focus on entry, both with respect to existing firms and new entrants. Entry is a key component of the Bureau’s analysis of competitive effects as set out in its Merger Enforcement Guidelines and barriers are a relevant factor under section 93 of the Act that the Tribunal may consider in evaluating the competitive effects of a merger.
Citing Hillsdown, the Tribunal said that “conditions of entry into a relevant market can be a decisive factor in [its] assessment of whether a merger is likely to prevent or lessen competition substantially … because, ‘[i]n the absence of significant entry barriers it is unlikely that a merged firm, regardless of market share or concentration, could maintain supra-competitive pricing for any length of time.’”
While CCS argued that the relevant market was not characterized by significant barriers, pointing to a permissive regulatory approval regime, growing demand for secure waste facilities and short-term contracting practices in the industry, the Tribunal found that effective new entry would likely take a minimum of 30 months from site selection to a complete operational landfill, with no evidence of proposed new entry.
The Tribunal also found that, absent the merger, the vendors (Complete Environmental) would have constructed a new competing secure landfill that would likely have been operational by the fall of 2012 or early 2013.
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