Both the Competition Act and the Investment Canada Act thresholds for
review of acquisitions involving Canadian businesses are expected
to increase in 2015. The "size of target" threshold for
Competition Act notification, if adjusted pursuant to the formula
prescribed in the Act, will increase to C$86 million, although this
increase has yet to be confirmed by the Minister and is subject to
his discretion. Industry Canada has announced that the threshold for review
applying to most direct acquisitions under the Investment Canada
Act will increase to C$369 million for transactions closing in the
remainder of 2015.
The Competition Bureau must generally be given advance notice of
proposed transactions under the merger notification provisions of
the Competition Act, when the "size of the target"
exceeds the specified threshold, and when the combined Canadian
assets or revenues "in, from or into" Canada of the
parties together with their respective affiliates (the "size
of parties" test) exceeds C$400 million. Transactions
involving Canadian subsidiaries, as well as the direct acquisition
of Canadian businesses or assets, and acquisitions of interests of
as little as 20% (for public companies) or 35% (for private
companies and interests in non-corporate business combinations) can
trigger merger notifications in Canada.
The "size of target" threshold for merger notification
is based on either the book value of assets in
Canada of the target (or in the case of asset acquisitions, of the
assets in Canada being acquired), or the gross revenues from sales
"in or from" Canada generated by those assets, calculated
in accordance with the Notifiable Transactions Regulations under the
Competition Act. The Act provides an amending formula to keep
the target size indexed for inflation, but the Minister has the
discretion not to index the threshold in any given year, and has
exercised that right in the past. If implemented, however,
application of that formula would see the threshold increased to
C$86 million for transactions closing in the remainder of 2015.
Investment Canada Act:
The threshold for advance review and Ministerial approval of
certain direct foreign acquisitions of control of Canadian
businesses under the Investment Canada Act is subject to indexing
for inflation. Subject to approval by the Minister, according to
the amending formula, it is expected that the amount will increase
from C$354 million to C$369 million dollars for 2015 for direct
investments by WTO investors (or from non-Canadian WTO investors)
in non-cultural businesses.
Direct acquisitions of control of Canadian businesses with
cultural activities, and direct acquisitions of control of
non-cultural Canadian businesses where neither the sellers nor
purchasers are from WTO-member states, are still subject to a
review threshold of C$5 million. Indirect acquisitions of control
of non-cultural Canadian businesses (pursuant to the acquisition of
control of their non-Canadian parents) are not subject to review
for WTO investors (or non-Canadian WTO-sellers), regardless of the
size of the assets of the Canadian business.
Legislation has been passed that would see the basis of
calculation of the Investment Canada Act review threshold changed
from book value to "enterprise value" and increased to
C$600 million (gradually rising thereafter to C$1 billion). This
change would not apply, however, to investments by state-owned
enterprises. Implementation of the change is awaiting finalization
of implementing regulations, but that process appears to be
stalled. Unless and until the "enterprise value"
threshold is implemented, the threshold for review of all
acquisitions of control of a Canadian business (one with assets and
employees or agents in Canada) remains based on the book value of
the Canadian business.
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.
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