Archive for the 'Mergers' Category
A few interesting regulatory law developments caught my eye today including:
Stanford University Press has published a new book entitled The Global Limits of Competition Law, edited by Daniel Sokol and Ioannis Lianos: Stanford University Press – The Global Limits of Competition Law.
The American Antitrust Institute has published a new global handbook on private competition law enforcement entitled The International Handbook on Private Enforcement of Competition Law: Edward Elgar Publishing – The International Handbook on Private Enforcement of Competition Law.
The Federal Government has introduced a new Safe Food for Canadians Act: Harper Government Introduces Safe Food for Canadians Act.
The Federal Privacy Commissioner yesterday issued a new policy position on online behavioural advertising: Policy Position on Online Behavioural Advertising.
The New York Times published an interesting Barnes & Noble Op Ed arguing that the settlement with e-book publishers would “punish consumers”: Barnes & Noble Argues Book Settlement “Punishes Consumers”.
The Australian competition regulator (the ACCC) has approved the Glencore/Viterra transaction: Australia Competition Watchdog Approves Glencore Takeover of Viterra.
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On May 25, 2012, the Federal Minister of Industry Christian Paradis announced that the Government had issued a Mediation Guideline to introduce formal mediation procedures under the Investment Canada Act (ICA). The Industry Minister also announced that the ICA Regulations would be amended to: (i) gradually increase the threshold for review of investments involving WTO investors to C $1 billion (increased from the current C $330 million) and (ii) introduce (or more accurately reintroduce) a new enterprise value test for the valuation of Canadian companies being acquired, both to implement amendments to the ICA passed on March 12, 2009 (see our earlier posts here and here).
Draft Regulations were first published for public comment in July, 2009 (see: Canada Gazette (July 11, 2009)).
Revised draft Regulations have now been published in the Canada Gazette for public comment (see: Regulations Amending the Investment Canada Regulations).
According to the Government, the proposed changes would “improve Canada’s foreign investment review framework, while maintaining the Government of Canada’s commitment to examine significant foreign investment transactions to determine whether they are likely to be of net benefit to Canada.” The shift to an enterprise test from the current book value of assets test is meant to better reflect the value of businesses as going concerns and importance of intangible assets in service and knowledge-based industries.
In general, the proposed new Regulations would: (i) gradually raise the review threshold for investments involving WTO entities to C $1 billion based on enterprise value over four years (to $600 million for two years, $800 million for the next two years, $1 billion after four years, and then indexed annually based on Canadian GDP), (ii) establish the methodology to calculate the enterprise value of a Canadian business, (iii) make conforming changes to remove references to transportation, financial services and uranium production sectors (lower thresholds for which sectors have been eliminated) and (iv) formalize the process for collecting information relevant to the net benefit and national security foreign investment review processes.
On May 29, 2012, the Competition Bureau announced that the Competition Tribunal has ruled in the contested BC waste merger case in favour of the Bureau, ordering the acquirer CCS Corporation to divest the hazardous waste landfill site it acquired in 2011.
In this widely watched case, the Bureau challenged the non-notifiable transaction post-closing taking the position that the transaction would substantially prevent competition in the secure landfill hazardous waste disposal market in North-Eastern British Columbia.
The Bureau argued that the transaction would eliminate a potentially vigorous new entrant in a market characterized by significant barriers and where timely entry was unlikely. The Bureau also argued that there were no alternative substitutes, foreign competition was unlikely and there was an absence of any effective remaining competition.
The decision is noteworthy for being the first contested merger case in Canada in six years (since 2005), a rather rare example of a “prevent” case (a merger may be challenged under the Competition Act where it prevents or lessens competition substantially) and a completed non-notifiable transaction.
Where the Bureau takes the position that a proposed merger is likely to prevent or lessen competition substantially, the Commissioner may seek remedial orders from the Tribunal including an order to block a transaction (in the case of a proposed merger) or an order for the dissolution of assets of shares (in the case of a completed merger).
This case is also an example of the Bureau’s increased willingness to challenge certain transactions post-closing, regardless of size, that may raise competition concerns. (Following 2009 Competition Act amendments, the Bureau may generally challenge mergers for up to one year post-closing, reduced from the former three years.)
In this regard, in announcing the Tribunal’s decision the Commissioner said:
“This case demonstrates that the Bureau will take on cases of all sizes and in all sectors. … Volume of commerce is not the only factor we consider when reviewing mergers — we are willing to take on a case where competition is being denied, regardless of size.”
The Bureau has also said in recent public statements that it would devote more resources to monitor publicly available sources for transactions that may pose competition concerns, making it incumbent on counsel to both review whether a transaction is notifiable and whether a transaction, if below the pre-notification thresholds under the Act, may nevertheless potentially raise competition concerns.
For the Bureau’s news release see:
Competition Bureau Successful in Precedent-Setting Merger Challenge
For the Tribunal’s decision (once available) see:
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On May 25th Industry Canada announced it was introducing a new Investment Canada Act (ICA) mediation guideline and would be finalizing Regulations introduced in 2009 to incrementally increase Canada’s ICA review threshold to C $1 billion over four years (see our earlier post).
Industry Canada also issued an annual report discussing the administration of the ICA in 2009 and 2010, recent policy changes and summarizing recent investment activity, the first such report in about twenty years. The following are a few interesting aspects of the Report:
High level trends. The Report states that some of the recent policy changes are intended to address the rise of sovereign investors, need to safeguard Canada’s national security and the market for foreign investment (the “growing global competition for foreign investment”).
Filings. Between April 1, 2009 and March 31, 2010, 437 ICA filings were received (23 applications for review were approved, with a total asset value of $30.8 billion; and 414 notifications were received: 109 for the establishment of new Canadian businesses and 305 relating to acquisitions of control, with a combined asset value of $30.1 billion).
Withdrawn filings. Between June 30, 1985 and March 31, 2010, 172 applications for review and 637 notifications were withdrawn. Two applications (of a total of twelve) were withdrawn following notice to the investors that the Minister was not satisfied that the proposed investments were likely to be of net benefit to Canada. The Report also discusses the blocked Alliant-MacDonald Dettwiler transaction.
Approved applications. In the 2009-10 fiscal year, 23 applications for review were approved, with an average review time of 69 days.
Net benefit to Canada methodology. The Report provides some insight into the Investment Review Division’s methodology for determining whether an investment will be approved (i.e., be found to be of net benefit to Canada, the relevant test), including considering the business’ “likely prospects” of success on a stand-alone basis, what the investor brings to the investment (e.g., capital or expertise not otherwise accessible by the Canadian business being acquired) and potential undertakings. The Report also describes how relevant factors are weighed during a review and states that reviews do not compare competing proposed investments. This discussion is consistent with recent statements by the Government that it would take steps to add increased transparency to Canada’s foreign investment review process. The new report does not, unfortunately, shed much light on the content of the existing net benefit to Canada factors set out in the ICA or how, for example, considerations with no apparent statutory basis (e.g., whether businesses are “strategic assets”, a much used phrase in the BHP/Potash transaction) squares with Investment Canada’s foreign investment review process.
Increased investment activity. In 2009-10, investment activity rose considerably with the total asset value of ICA transactions (applications for review and notifications) almost doubling to $61 billion (increased from $33 billion in 2008-09). The average asset value for reviewable investments increased from $766 million in 2008-09 to $1.34 billion in 2009-10 and the average asset value of notifiable investments increasing from $30 million to $73 million.
Source of investment. U.S. investors represented the largest number of ICA investors over the past five years, followed by EU investors (with U.K. investors representing a large percentage by asset value).
On May 25, 2012, the Minister of Industry Christian Paradis announced that the Government had issued a Mediation Guideline to “make formal mediation procedures available under the Investment Canada Act” (ICA) and that the ICA regulations would be amended to gradually increase the threshold for review of investments involving WTO investors to C $1 billion based on enterprise value (increased from the current threshold of C $330 million based on the book value of the Canadian target company’s assets).
In making the announcement, the Industry Minister said:
“Canada has a strong investment climate, and these targeted changes will ensure that our foreign investment review process continues to encourage investment and spur economic growth,” said Minister Paradis. ‘Foreign investment is vital to the Canadian economy. It helps Canadian companies find new capital and enables them to expand, innovate and create jobs for Canadians.’”
Increased Review Threshold
The announced increase to the WTO investor review threshold follows 2009 amendments to the ICA that had not come into force and that were based on suggestions by the Competition Policy Review Panel, which recommended in its final 2008 Report Compete to Win, among other things, that the ICA review threshold be raised to $1 billion (except for cultural businesses) for two reasons.
First, a higher threshold was, in the Review Panel’s view, consistent with an appropriately narrower and “exceptional” test for intervention under the ICA; and second, to align Canada’s foreign investment review regime with Canada’s position that foreign investment is, except in unique circumstances, beneficial to Canada.
The Review Panel also recommended that the test to calculate the review threshold be changed from the current test (based on the book value of the Canadian business’ assets) to an enterprise value test (to more appropriately reflect the growth of knowledge-based industries and intangible assets – e.g., know-how, IP and other intangible assets).
Once the new Regulations are in force (revised Regulations have not yet been published in the Canada Gazette), the WTO review threshold will initially rise to C $600 million (for two years), then to $800 million (for another two years) and then to $1 billion (and then be indexed going forward based on Canadian GDP as is the case currently).
Mediation Guideline
According to the Minister, the new Mediation Guideline is intended to provide a “voluntary means of resolving disputes when the Minister believes an investor has failed to comply with an undertaking”.
Some of the key features of the new Guideline (presumably based, at least in part, on the prolonged litigation relating to the alleged failure by U.S. Steel to comply with undertakings provided in connection with its acquisition of Stelco) include setting out a process for discussions to resolve concerns relating to the performance of undertakings, the discretion by the Minister to accept new undertakings (both within and independent of the new mediation process) and compliance demands (which may be followed by court proceedings).
The new Guideline also establishes a process for the agreed use of mediators as an alternative to “potentially lengthy and costly legal proceedings.”
Revised Regulations for Comment
Original Regulations that were first published when the ICA was amended in 2009 have been revised to reflect comments received and additional changes to the methodology to calculate enterprise value, and will be subject to a 30-day public comment period before final publication.
Report
Industry Canada has also issued a Report on the administration of the ICA in 2009 and 2010 and has announced that it will be resuming its earlier practice of annual reporting. The new Report, the first annual report relating to the administration of the ICA since 1993, includes an overview of the ICA and its administration, discussions of recent policy developments and a summary of activities under the ICA in 2009 and 2010.
For more see:
Industry Canada News Release
Minister Paradis Announces Additional Improvements to the Foreign Investment Review Process
Backgrounder
Proposed Amendments to the Investment Canada Regulations
Mediation Guideline
ICA Report
Competition Policy Review Panel Report (2008)
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Global Competition Review (Getting the Deal Through) has recently published several new M&A and regulatory law related global surveys (including Canada) in their rather fine series. From GCR:
Mergers & Acquisitions 2102
“Getting the Deal Through is delighted to publish the fully revised and updated thirteenth edition of Mergers & Acquisitions, a volume in our series of annual reports, which provide international analysis in key areas of law and policy for corporate counsel, cross-border legal practitioners and business people.
Mergers & Acquisitions 2012 examines the law and regulation of business combinations and addresses the most important issues for international deals.
Following the format adopted throughout the series, the same key questions are answered by leading practitioners in each of the 67 jurisdictions featured. New jurisdictions this year include Australia, Bolivia, the Cayman Islands, Delaware, the Republic of Georgia, Indonesia, Kazakhstan, Kuwait, Kyrgyzstan, Pakistan, Peru, Serbia and Tajikistan. Global and EU overviews are also provided.
Many legal disciplines come into play in large M&A deals. In particular, advisers must take account of competition regulation. This volume contains an appendix covering merger control rules across the world. For a more detailed analysis please refer to another volume of the Getting the Deal Through series: Merger Control.”
The Foreign Investment Review Committee of the CBA’s Competition Law Section will be holding a Foreign Investment Review Conference in Toronto on June 1st (an “informative discussion on the law and policy issues involved in navigating transactions through Canada’s foreign investment review regulatory process”).
Guests from Industry Canada and Canadian Heritage will include Jenifer Aitken (Director General, Investment Review and Strategic Planning Branch, Industry Canada) and Missy Marston-Shmelzer (Deputy Director of Investments and Director, Cultural Sector Investment Review, Canadian Heritage).
For more information see:
The following are a few competition and regulatory law developments that caught my eye today:
The Saskatchewan Government issued a review report on the proposed Glencore/Viterra transaction calling for, among other things, conditions to ensure compliance with Glencore’s Investment Canada Act commitments and a review of potential competition concerns in the retail (i.e., crop input) markets: Government Releases Review of Glencore Acquisition of Viterra
The OECD issued a new Procedural Fairness and Transparency Report, which includes recent Competition Bureau transparency initiatives: Procedural Fairness and Transparency – Key Points 2012
The International Trade Minister delivered remarks to the Canadian Manufacturers & Exporters (BC) about the new Canada-EU trade agreement: International Trade Minister Ed Fast Highlights Benefits of Canada-EU Trade Agreement to Canadian Manufacturers & Exporters
The Canadian Council of Chief Executives has commented on competition and infrastructure in Canada to supply Chinese energy needs: Canada: Competing for China’s energy needs
The CRTC’s Executive Director of Broadcasting addressed innovation and competition in local radio and television markets in BC: Speech to the 65th annual conference of the British Columbia Association of Broadcasters
The Competition Bureau issued its April Monthly Merger Review Report: Merger Review Report
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
