This article was originally published in Blakes Bulletin on Competition - January 2006
Article by Calvin Goldman, Q.C., Brian Facey, Robert Kwinter, Crystal Witterick, Navin Joneja, Jason Gudofsky, & Julie Soloway, ©2006 Blake, Cassels & Graydon LLP
On October 19, 2005, the Canadian Competition Bureau released for comment its draft Information Bulletin on Merger Remedies in Canada (a copy of which is available at http://www.competitionbureau.gc.ca/PDFs/info_bulletin_mergerremedies_051017_e.pdf).
On January 20, 2006, Blakes Competition Group submitted its comments to the Bureau (Blakes Submission), pointing out what the draft Remedies Bulletin does well and highlighting a number of places where it could be improved for businesses. The following is a summary of our principal comments:
- Recognition of Role of Comity: The draft Remedies Bulletin confirms that the Bureau will co-ordinate remedies with other competition authorities when a multi-jurisdictional merger is likely to have anti-competitive effects in Canada that are similar to those in other jurisdictions. In fact, the Bureau explicitly acknowledges that it “may rely on remedies ... initiated by the foreign jurisdictions when assets that are subject to a divestiture [or behavioural remedy] are primarily located outside of Canada”. The Bureau has followed this approach in a number of transactions, such as Guinness/Grand Metropolitan, Alcan/Pechiney (II), GE/Instrumentarium and Procter & Gamble/Gillette transactions.
- Lack of Recognition of Efficiencies Defence: The draft Remedies Bulletin gives no consideration to the implications of the statutory efficiencies defence set out in section 96 of the Competition Act even though: 1) as a matter of law, no remedy may be imposed in Canada where the efficiencies from the merger are greater than and offset its anticompetitive effects; and 2) the Bureau's Merger Enforcement Guidelines acknowledge that it will assess efficiencies as part of its merger review process. Blakes comments propose terms to address these concerns for possible inclusion in the final Remedies Bulletin.
- Hold Separate Provision: The draft Remedies Bulletin makes it clear that the preferred remedy in an injunction hearing is a hold separate, pending the outcome of litigation; there is little emphasis on the alternative of an order blocking closing altogether. Moreover, the Bureau prefers to negotiate, rather than litigate, and notes that that where all competition issues cannot be addressed on consent, the Bureau is prepared to consider limiting the scope of litigation in order to allow the non-contentious parts of a merger to proceed. These statements taken together may suggest an emphasis by the Bureau on finding solutions, rather than challenging deals.
- Legal Test: There are a few examples in the draft Remedies Bulletin where the Bureau suggests that the appropriate goal of merger remedies is to restore the pre-merger level of competition. The law, however, only requires that competition not be prevented or lessened substantially. In this respect, the Bureau seems to advocate a legal test that goes beyond what is required by Canadian law.
- No Minimum Price Proposal: The draft Remedies Bulletin provides that a remedy package is to be offered at no minimum price during the divestment trustee period. Blakes is concerned that a no minimum price policy encourages potential purchasers to withhold offers in an attempt to potentially secure an unwarranted price reduction (or crown jewel) to a remedy package, and thus could unfairly tip the balance against the merging party.
- Crown Jewels: The draft Remedies Bulletin confirms that the Bureau may require the inclusion of a crown jewel provision in a remedy package. Blakes recommends that the Bureau make it more clear that it will ask for a crown jewel in only the rarest of cases, and not where the divestment is a fix-it-first or upfront buyer scenario or where the divestiture involves a standalone business.
- Short Time Frames for the Interim and Trustee Divestiture Periods: The draft Remedies Bulletin proposes 3-6 month interim divestment period and a 3-6 month trustee divestment period. Both of these time periods are too short, particularly for Canada. Furthermore, the draft Remedies Bulletin places the interim and divestment trustee periods on a potentially shorter combined timeframe than in either the U.S. or the EU, which could make international cooperation difficult.
- Flexibility in the Type of Structural Remedy and Optionality: The draft Remedies Bulletin identifies only a single type of structural remedy, namely the sale of a specified asset(s) or business. This is too narrow a view of acceptable structural remedies. Accordingly, Blakes recommended that the Bureau confirm in the final Remedies Bulletin that it will allow the merging parties to propose different types of structural remedies, including a spin-off to shareholders or an initial public offering, and not just a sale of assets or business to an approved buyer.
- Insufficient Recognition of Role of Behavioural Remedies in Canada: The Bureau has made significant use of behavioural remedies (as opposed to divestitures) with success in a number of cases, and should be more open to the full range of remedies in any particular case than what is suggested by the draft Remedies Bulletin. The draft Remedies Bulletin understates the role that such remedies might play in a heavily regulated country like Canada, which may have fewer potential buyers than jurisdictions such as the U.S. or Europe.
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.
