Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Competition, Antitrust & Foreign Investment, October 2011
On October 6, 2011, the Canadian Competition Bureau (the Bureau) released the final version of its revised Merger Enforcement Guidelines (MEGs). The previous guidelines were issued in 2004. The release of the MEGs follows two rounds of consultations, first on whether the Bureau's previous MEGs should be amended in light of revisions to the U.S. Horizontal Merger Guidelines (U.S. Guidelines), and second on proposed draft revisions issued June 27, 2011. Blakes participated extensively in the consultation process, including submitting comments directly and contributing to comments submitted by the Canadian Bar Association and by the American Bar Association.
While the MEGs do not represent a fundamental departure from the traditional Canadian approach to merger review, they do make a number of key changes, including with respect to:
- clarifying the Bureau's view on what constitutes a "merger"
- interlocking directorates and minority interests
- market definition
- anticompetitive effects analysis
- non-horizontal mergers
What Constitutes a "Merger"
The MEGs include an expanded discussion of how the Bureau interprets the definition of a "merger" under the Competition Act (the Act). The Act defines a merger to include the acquisition of a significant interest in the whole or a part of a business. The MEGs take an expansive view of what may constitute a significant interest as including transactions and appointments that result in the ability to materially influence the economic behaviour of a business – even where no voting or economic interest is being acquired.
Interlocking Directorates and Minority Interests
In line with the expanded discussion of what constitutes a "merger" under the Act, the MEGs now contain an expanded discussion of the factors the Bureau considers when assessing the competitive effects of a merger involving interlocking directorates and minority shareholdings. Factors considered in this analysis include the extent to which the acquirer or interlocked directorate may induce the firms to compete less aggressively with one another, and whether access to confidential information may facilitate co-ordination between the two firms.
Reflecting changes in the U.S. Guidelines, the MEGs have been updated to clarify the role of market definition within the Bureau's analytical framework for merger review. In particular, the MEGs now explain that market definition and the analysis of competitive effects are part of an iterative process, whereby evidence in respect of market definition and market shares is considered in assessing anticompetitive effects, while the results of effects-based analyses are used to hone the Bureau's definition of the relevant market. Moreover, the MEGs explain that the Bureau may not reach a firm conclusion on the precise metes and bounds of the relevant market where such a conclusion is not necessary for the Bureau to conclude its analysis. Nevertheless, the MEGs make clear that market definition is still "generally undertaken" and "generally sets the context for the Bureau's assessment of the likely competitive effects of a merger."
Anticompetitive Effects Analysis
The revised treatment of market definition in the MEGs is accompanied by changes to the discussion regarding the anticompetitive effects analysis. The MEGs have become more complex and sophisticated in this regard, explicitly contemplating different assessments depending on the nature of the products in the relevant market. For example, the MEGs have adopted an approach to assessing differentiated product markets that is very similar to the approach adopted in the U.S. (though they do not specifically reference the upward pricing pressure test adopted in the revised U.S. Guidelines). Similarly, the MEGs provide additional guidance on the evaluation of mergers in bidding and bargaining markets, recognizing that where there are many firms that are similarly situated to the merging parties in terms of meeting a buyer's requirements a merger is unlikely to prevent or lessen competition substantially.
In respect of non-horizontal mergers (which include "vertical" mergers into upstream or downstream markets as well as "conglomerate" mergers into different but potentially related markets), the MEGs explain that the Bureau's focus will be on assessing whether the merger is likely to lead to foreclosure of inputs or customers, or could allow the merging firms to foreclose competitors by tying the sale of two products that are not both produced by the merged entity's competitors.
The Act contains an explicit "efficiencies defence", which prohibits the Competition Tribunal from issuing an order under the merger provisions of the Act where the gains in efficiency likely to be brought about by the merger are greater than, and would offset, the likely anticompetitive effects and those efficiencies likely would not be achieved if the order were made. This efficiencies defence has been the subject of considerable debate in Canada and was litigated extensively in the Superior Propane case.
The MEGs represent a departure by the Bureau from its previous interpretations of the statutory efficiencies defence. The old MEGs and the 2009 Efficiencies Bulletin acknowledged that a wealth transfer resulting from an anticompetitive price increase may be considered an anti-competitive effect in some circumstances. In particular, the old MEGs explained "there are different ways in which the wealth transfer could be taken into account when evaluating a merger. One approach to the wealth transfer is the 'socially adverse effects approach', which attempts to quantify the portion of the transfer that is considered socially adverse." Now the MEGs simply state "providing buyers with competitive prices and product choices is an objective of the Act." This indicates that the Bureau may intend to resile from its previous interpretation (notwithstanding that the previous interpretation was based on several Court of Appeal decisions in Superior Propane) and wishes to leave its options open in taking a restrictive approach to the efficiencies defence in future cases.
Separately, the MEGs indicate that the Bureau only will consider efficiencies where the merging parties provide evidence of those efficiencies in a timely manner – in other words, where the Bureau believes a substantial prevention or lessening of competition is likely, unless the parties provide efficiencies evidence on a timeline the Bureau deems acceptable, the Bureau will apply for an order from the Tribunal without assessing whether the Competition Tribunal is statutorily empowered to issue that particular order.
The MEGs are an important reference for the competition bar and the business community when considering the application of the merger review provisions of the Act to a proposed merger and when determining what information should be provided to the Bureau to assist in its review of a proposed merger. While the MEGs do not represent a fundamental departure from the traditional Canadian approach to merger review, they do provide useful guidance on the Bureau's current enforcement approach, which has evolved since the previous MEGs were issued in 2004.
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