On March 23, 2012, the Competition Bureau announced its publication of two draft Pre-Merger Notification Interpretation Guidelines for public consultation.
The publications, dubbed Pre-Merger Notification Interpretation Guideline Number 12 and Number 14 relate respectively to the requirement to submit a New Pre-merger Notification and/or ARC Request Where a Proposed Transaction is Subsequently Amended, and Duplication Arising from Transactions Between Affiliates.
Guideline # 12: Amended Transactions
Under the Competition Act, parties to a proposed transaction that exceeds the monetary thresholds set out in sections 109 and 110 are required under section 14 to notify the Commissioner and supply the Bureau with information prescribed by the Regulations.
In situations where a proposed transaction is amended after the parties have notified the Bureau and/or submitted an ARC request to the Commissioner, the Bureau may require a new notification or ARC to be submitted to reflect the changes made to the transaction. The new draft Interpretation Guideline No. 12 is intended to clarify the Bureau's policy with respect to such revised notifications/ARC requests. In particular, the Guideline states that the Bureau will take the following considerations into account prior to requesting a new notification and/or ARC request in circumstances where a proposed transaction has been amended:
- The correctness of the information contained in the notification in respect of the amendments made to the proposed transaction; and
- Whether the amendments to the proposed transaction that is the subject of the ARC request will result in the Bureau having to conduct a more in-depth or revised competitive effects analysis.
Interpretation Guideline # 12 describes certain amendments to a transaction and the likelihood that a revised notification and/or ARC request will be required:
- Addition of a New Party: Where a transaction is amended to add a new party, a new notification with the prescribed information for the added party will be required. However, pursuant to subsection 109(2) of the Act, a new vendor in a share transaction is not a "party" to the transaction, and the Guideline also states the Bureau's view that a mere guarantor is also not required to file. New notification will also not be required in cases where an affiliate of a notifying party is added except where there is an addition of a significant affiliate whose information was not supplied, in which case an amended filing will be required (and a new waiting period will commence).
- Addition of a New Asset: Whether adding a new asset to a transaction will require a new notification will depend on whether the information contained in the existing notification will be correct "in all material respects". In cases where the asset being added is ancillary to the existing assets, the information contained in the existing notification may be accurate and the Bureau will not require a new submission, but the Guideline states the view that addition of a material new asset will typically require a new notification. In determining whether an asset is ancillary the Bureau states that it will evaluate both quantitative and qualitative factors, e.g. book value of the added asset, relation to existing assets, and relative size.
- Addition of New Voting Shares or Redistribution of Assets, Voting Shares or Ownership Interests: Normally, any of these amendments will require a new notification in order to ensure material accuracy. However if a party acquiring the additional voting shares was previously acquiring more than a 50% voting interest in the target corporation, a new notification will not be required. In addition, where an amendment is made such that an existing party acquires less than an additional 5% of the voting interests of the target, a new notification will not be required unless the additional acquisition will trigger the subsection 110(3) threshold (each of 20% and 50% for public corporations, or 35% and 50% for privately-held corporations or non-corporate entities).
- Removal of an Asset or Party: This will not normally trigger the requirement for a new notification. However, if the removal of a party will result in an increase in the ownership interest of another purchaser, new notification may be required.
New ARC Requests
Generally speaking, the Bureau will require a new ARC request where an amendment to a proposed transaction will result in a different competitive effects analysis or will require a more in-depth analysis of the transaction. Factors that the Bureau will consider in this regard include:
- Description of the proposed transaction and the parties;
- Whether the complexity designation and the information required to commence the service standard for the amended transaction is different from the initial proposed transaction;
- The relationship of an added party to the existing parties in the proposed transaction (e.g. affiliate, customer, supplier, or competitor);
- Whether the existing ARC request contemplated the redistribution of assets or ownership interests among the parties, if any;
- Where a new asset has been added, whether or not that asset is ancillary to the existing assets.
The Bureau has clarified that where a new notification is required in respect of an amended proposed transaction, the 30 day waiting period will begin to run from the date that the Commissioner receives the new notification. Furthermore, parties submitting a new notification will be required to pay the applicable filing fee, unless they have filed both a notification and an ARC request and the amendment to the transaction only requires one of them to be updated.
Interestingly, the draft Guideline seems to deal only with situations in which the Bureau's review continues, and does NOT address the situation in which an ARC has been issued, and the transaction subsequently changes prior to closing, and the question arises as to the continued validity of the ARC to the modified transaction.
Guideline # 14: Duplication Arising from Affiliate Transactions
The thresholds for notifiable transactions set out in sections 109 and 110 of the Act are measured by either the monetary value of the parties' assets in Canada or the gross revenues derived from sales "in, from, or into" Canada generated by the assets. Subparagraph 4(1)(a) and subsection 5(2) of the Notifiable Transactions Regulations provide that in determining the amounts under sections 109 and 100, any amount that represents duplication arising from transactions between affiliates shall be deducted.
The draft Interpretation Guideline No. 14 establishes that, in considering whether there is a duplication that may be deducted pursuant to the Regulation, the Bureau will consider the accounting principles normally used by the party (or its affiliates) as well as those that are generally accepted for the type of business carried on by that party or its affiliates. Simply stated, the purpose of deducting duplicated amounts is to avoid double counting. When evaluating the party size or transaction size for determining whether the thresholds of the Act have been exceeded, subsection 5(2) of the Regulations provides the parties with the ability to deduct revenue from the sale of a product only if it duplicates an equivalent amount of revenue from another sale of that product that is already included in the party size or transaction size calculation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.