On May 4, 2006, the Honourable Lawrence Cannon, Minister of Transport, Infrastructure and Communities, introduced amendments to the Canada Transportation Act (CTA). Minister Cannon promotes the changes as balancing the interests of communities and consumers with those of air and rail carriers, leading to "a transportation framework that can better meet future economic … challenges." However, the amendments, if enacted, could also present unforeseen challenges to some Canadian businesses, especially in terms of mergers and acquisitions.
Bill C-11, An Act to Amend the Canada Transportation Act and the Railway Safety Act, is similar to Bill C-44, brought forward by the previous government in its dying days. The amendments are described by the government as introducing a public interest review process for mergers and acquisitions of all federally regulated transportation services. At present, the CTA’s provisions relating to merger and acquisition review are found in Part II of the Act, and apply only to air transportation undertakings. The amendments would move the provisions to Part I of the Act, making most of them applicable to all transportation undertakings. Canadian control and ownership requirements, however, would not extend to all forms of transportation, but rather would continue to apply exclusively to air transport services.
Currently, section 56.1 of the CTA provides for the review by the Canadian Transportation Agency of transactions involving an "air transportation undertaking" if the parties to the transaction are required to file pre-merger notifications under the Competition Act 1. The proposed changes would extend these reviews to transactions involving all types of transportation undertaking. After an initial appraisal, the Minister would recommend a CTA review if any "public interest" issues are raised by the transaction. However, the terms "public interest," "air transportation undertaking," and "transportation undertaking" are never explained or defined in the Act.
The failure to define "transportation undertaking" raises uncertainty as to exactly what companies are potentially subject to the CTA review provisions. This is particularly concerning for transactions involving a company that engages in some transportation activities, but where it is questionable whether the company as a whole merits the characterization "transportation undertaking."
The failure to define "transportation undertaking" extends an existing weakness of the CTA, namely the failure to define "air transportation undertaking." The CTA was already open to criticism for imposing onerous ownership and control requirements2 on air transportation undertakings, but failing to make clear what companies fall into this category. The proposed amendments maintain the requirements but do nothing to clarify their application.
Similarly, "public interest" is a vague term that might easily be used to cloak arbitrary, politically motivated intervention on the part of the government. The proposed amendments suggest that the Minister may create guidelines respecting what information the parties to a transaction should submit for the assessment of "public interest." Unless and until such guidelines are created, however, companies contemplating a merger or acquisition can only guess whether the transaction will raise "public interest" issues, thus triggering the CTA review process and subjecting it to a requirement of Federal Cabinet approval.
The proposed amendments will significantly broaden the Government’s ability to review—and potentially block—many transactions that may have historically been subject only to Competition Bureau review. Furthermore, the ambiguity of the terms "public interest" and "transportation undertaking" in the proposed amendments suggest that Bill C-11 could have far-reaching and potentially significant implications for all businesses that engage in transportation activities. Meanwhile, existing uncertainty about what companies are "air transportation undertakings," and thus potentially subject to the Canadian ownership and control requirements, remain unresolved. In terms of mergers and acquisitions, the proposed changes create new challenges, rather than address old ones.
The second reading of Bill C-11 is expected to occur before the end of June.
1 Generally, parties are required to notify the Competition Bureau in respect of a transaction if the parties (including affiliates) have, on a combined basis, either assets in Canada or annual gross revenues from sales in, from or into Canada exceeding $400 million and the value of the assets in Canada of the operating business being acquired or the gross revenues from sales in or from Canada generated by those assets exceeds $50 million. In the case of share acquisitions, the person acquiring the shares must also acquire an interest in the corporation exceeding either 20% (for public corporations) or 35% (for private corporations) or, if such threshold is already exceeded, 50%.
2 Section 56.2(1) of the current Act (s. 53.2(1) under the proposed amendments) requires that any merger or acquisition of an air transportation undertaking must result in an undertaking that is Canadian, that is to say, that 75% of its voting interests be owned by Canadians and that it be controlled in fact by Canadians.
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