Originally published in the 26 September 2006 issue of Competition Law Insight.
Since she assumed the role of competition commissioner, Sheridan Scott has promoted greater transparency in the Canadian Competition Bureau’s merger review process. In particular, the Bureau has made a concerted effort to explain its reasoning in allowing merger transactions to proceed. These explanations give a valuable insight into the Bureau’s analysis and the issues that can give rise to concern.
The most recent example of such transparency is the RONA / Coupal case. On 14 August, the Bureau released a technical backgrounder on its decision not to challenge the acquisition by RONA Inc of a 51% interest in the operating business of Matériaux Coupal Inc (Coupal). RONA is a leading Canadian distributor of hardware, renovation and gardening products. Coupal operates retail outlets for lumber and building supplies in Québec and manufactures structural building products.
Two aspects of the Bureau’s decision are of particular interest.
■ Post-Merger Monitoring. The Bureau focused on (1) the downstream market for the sale of lumber and building materials to home building contractors; and (2) the upstream market for the supply of lumber and building materials to retailers.
The Bureau identified one downstream market of potential concern. In the city of Granby, RONA/Coupal would have accounted for approximately 50% of total retail sales of lumber and building materials post-merger, and had only one remaining competitor. Moreover, many contractors interviewed by the Bureau feared that the acquisition would lead to higher prices. Weighed against that, however, was the Bureau’s finding that other competitors "might consider" expanding their businesses to Granby in the event of a price increase.
As regards the upstream market, the Bureau noted that some suppliers had expressed concerns about RONA’s enhanced buying power post-merger. In particular, the Bureau worried that RONA might obtain preferential treatment from suppliers, resulting in the exclusion of competitors.
Ultimately, the Bureau decided that these issues did not justify challenging RONA’s acquisition. However, because of its lingering concerns, the Bureau decided to impose a more vigorous monitoring regime post-merger than is customarily the case in Canada.
Under the Competition Act, the Bureau may challenge a merger within three years of completion, unless it has granted an advance ruling certificate. Typically, the Bureau will permit a merger to proceed while reserving its right to challenge subsequently the transaction within the statutory three-year period. However, the Bureau does not usually accompany this with any monitoring mechanisms. In this instance, however, the Bureau secured RONA’s agreement to co-operate in providing it with the information necessary to track the competitive effects of the merger going forward.
■ Market Contacts. Another interesting aspect of the Bureau’s review process was its agreement to delay market contacts for approximately five months after it was first advised by RONA about the merger. Market contacts are an important aspect of merger analysis. However, in this instance, the Bureau was prepared to take what it characterised as the "exceptional" step of acquiescing in RONA’s request, subject to an undertaking that RONA would not complete the merger without giving the Bureau six weeks’ advance notice. The competition authority eventually commenced its market contacts once the acquisition was made public.
However, the Bureau wants to avoid parties routinely requesting limitations on market contacts. It has said that it will not look favourably upon requests to refrain from making market contacts, and will not agree to limits on its ability to speak to third parties except in "extraordinary circumstances". Parties should also be aware that any request that the Bureau delays contacting market participants will correspondingly delay the Bureau’s response as regards their merger.
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