Canada: Parkland Announces Closing Of Pioneer Transaction As Competition Act Merger Proceedings Continue

On June 25, Parkland Fuel Corporation announced  the closing of its acquisition of the assets of Pioneer Energy LP. The closing follows an order of the Competition Tribunal, issued on May 29, 2015, which partially granted the Commissioner of Competition’s request for an injunction against Parkland’s acquisition of 14 of the 393 gas stations and exclusive long-term supply contracts. The Commissioner of Competition filed an application under section 92 of the Competition Act  on April 30, 2015, seeking to block the acquisition of the 14 stations, alleging that the transaction (announced on September 17, 2014) would likely lead to a substantial lessening of competition in 14 already concentrated markets across Ontario and Manitoba.

Issued under section 104 of the Competition Act (see below), the interim injunction requires Parkland to preserve and independently operate the assets to be acquired from Pioneer in six of the 14 communities until the Tribunal issues its final decision.

Background

Each of the parties carries on business as an independent marketer of fuel and petroleum products. Parkland operates or supplies approximately 700 retail gas stations in Canada under the Fas Gas Plus, Race Trac Gas and Esso brands. Pioneer operates or supplies nearly 400 gas stations in Ontario and Manitoba under the Pioneer, Esso and Top Valu brands.

The test under section 104

Sections 100 and 104 of the Act empower the Commissioner to apply to the Tribunal for interim orders to prevent the completion or implementation of a proposed merger. Unlike applications under section 100 of the Act (which are subject to an easier legal test, but can only be obtained before the Commissioner has launched a formal merger challenge and are limited in duration), orders under section 104 can only be obtained after a challenge has been launched, and give the Tribunal the power to issue any interim order that it considers appropriate. In this case, the Tribunal directed the parties to preserve and hold separate the assets proposed to be acquired pending the determination of the Commissioner’s challenge. The Tribunal confirmed that the elements of the test under section 104, which track the test for injunctive relief in R.J.R. Macdonald Inc. v. Canada (AG) and which the Commissioner has the burden of satisfying, are as follows:

  1. there must be a serious issue to be tried;
     
  2. there must be “clear and non-speculative evidence” from which it can be reasonably and logically inferred that irreparable harm will result if the interim injunction is not granted; and
     
  3. the balance of convenience must favour granting the interim injunction.

Serious issue

With respect to the first element of the test, the Tribunal concluded that the Commissioner had raised serious issues to be tried in respect of whether the transaction would likely result in a substantial lessening of competition in the 14 local markets in issue. Parkland had unilaterally committed to divestitures in 11 of the 14 contested markets, and had also unilaterally committed to ensure that the fees charged to independent dealer stations would be consistent with current supply agreements and that Parkland would maintain Pioneer’s pricing strategy at Pioneer corporate stations. However, the Tribunal found that Parkland’s proposed remedies did not dispense with the serious issue to be tried because Parkland either did not offer a remedy or, where it did, its proposed remedy would not satisfy the Commissioner’s concerns because the remedies were not sufficiently detailed.

Irreparable harm

When it came to the second element of the test, the Commissioner met with only partial success. In his application, the Commissioner alleged that the apprehended harm to consumers and the broader economy would result from the ability of the merged entity to increase prices and otherwise limit competition, a position heavily dependent on the definition of the geographic markets. While Parkland’s expert had effectively acknowledged that market shares and concentration would likely increase in six of the markets (leading to an inference of irreparable harm), the Tribunal was of the view that the Commissioner had failed to advance sufficient evidence of the alleged harm with respect to the other eight, and the Tribunal concluded that the Commissioner’s expert did not provide sufficient evidence or information as to how the geographic markets were defined in eight of the 14 contested markets.

Balance of convenience

Proceeding to the final element of the test, the Tribunal found that, in the six local markets where it found that irreparable harm would occur in the absence of an interim injunction, the balance of convenience favoured granting the injunction. Specifically, it found that the costs that Parkland claimed it would incur as a consequence of the requested hold separate order were either speculative or minimal, while the harm to the public interest in the absence of an interim injunction would likely be significant.

Conclusion

This case marks the first time that the Tribunal has considered a contested application for an interim injunction in respect of a merger under section 104 of the Act. In a departure from the Commissioner’s practice over the last several years whereby the Commissioner  has been unwilling to allow any part of the merger to close until a final conclusion has been reached (whether by way of an agreed settlement or Competition Tribunal decision) vis-à-vis any contested issues. The Parkland decision is therefore important for two key reasons. The first is because the Commissioner only sought an interim injunction with respect to 14 of the 393 gas stations and supply agreements to be acquired (and was prepared to allow the balance of the transaction to be completed). Second, the Tribunal’s decision suggests that it will hold the Commissioner to a high evidentiary standard before issuing even an interim order. While it is always difficult to gauge the impact of one case, the Parkland decision may change the bargaining dynamic between merging parties and the Bureau when negotiating remedies for potentially problematic mergers.

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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