On April 16, 2012, Canada's Competition Bureau issued a statement outlining the
analysis it had undertaken of Cardinal Health's
then-proposed acquisition of Futuremed to conclude that, despite
some concerns expressed by certain customers, the transaction was
unlikely to result in a substantial prevention or lessening of
competition in any relevant Canadian market. Stikeman Elliott
acted on behalf of Cardinal Health.
Cardinal Health and Futuremed were both distributors of a broad
range of medical supplies and surgical equipment to various
healthcare facilities in Canada, supplying products from hundreds
of global manufacturers. The Bureau noted that prices in the
healthcare products distribution industry are typically set through
a tendering process between manufacturers and customers, whereby
manufacturers sell direct to the individual healthcare facility or,
alternatively, to a buying group acting for several healthcare
facilities. As such, authorized distributors of manufacturers,
such as Cardinal Health and Futuremed, do not compete on price, but
rather compete through the use of distribution fee rebates, quality
of service and technical expertise offered to customers.
In its analysis, the Bureau focused on the Province of Quebec,
where over 90% of products are purchased through this tendering
process (a requirement dictated by provincial legislation), and
where the Bureau stated there is currently only one smaller
competitor with the same type of "full-line" product
offering as the parties. According to the Bureau, certain
customers expressed concern that the transaction could result in a
loss of distribution rebates, product variety and quality of
service. Larger customers, in particular, expressed concern
that they would face high transaction costs of dealing with
numerous suppliers if forced to switch to other partial-line
distributors or to direct supply by manufacturers. Customers
also raised concerns that service quality would be affected if they
had to begin to rely on distributors without local warehouse
facilities or service personnel.
Despite such concerns, the Bureau found that the barriers to
expansion by full-line distributors, e.g., from other
provinces, were likely surmountable. The Bureau highlighted several
factors that drove its conclusion:
Full-line distributors already distribute a broad range of
products, and are well-positioned to expand their operations;
A sufficient proportion of the parties' distribution
agreements with manufacturers will be contestable in the near
future, creating opportunities for new and existing
The sunk costs in the healthcare distribution industry are not
A sizeable customer base can be developed with a relatively
limited number of trained or experienced local sales
representatives, which the parties argued is readily
Based on these factors, the Bureau concluded that expansion from
new or existing competitors from the relevant or adjacent markets
was likely to occur, and, as such, would likely constrain an
exercise of market power by the merged entity. The transaction
closed in early March.
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