Canada: Competition Law Implications Of M&A: Part II

As discussed in a previous post on this blog, a merger or acquisition will be barred where it is found to prevent or substantially lessen competition in a market (Competition Act, s. 92(1)). The Commissioner's ability to apply to the Competition Tribunal (the Tribunal) to inhibit a merger or acquisition applies to both proposed and completed transactions (Competition Act, s. 92(1)). Although formal approval is not required to close a transaction, the Competition Act (the Act) sets out mandatory and voluntary steps that parties to a merger or acquisition should consider before closing:

1. Consider whether the proposed transaction is notifiable

The purpose of making certain transactions notifiable is to provide the Commissioner with sufficient time to review a transaction and to avoid the dissolution of a completed merger later found to be anti-competitive. The Act prescribes two thresholds, one based on the size of the parties and the other based on the size of the transaction, that will cause a proposed transaction to be notifiable.

(a) Size of the parties to the proposed transaction

Where parties to a proposed transaction either have assets or gross sales in Canada, with a combined value of over four hundred million dollars, then the transaction is notifiable. (Competition Act, s. 109)

(b) Size of the proposed transaction

Where assets being sold as part of the proposed transaction or the sales revenue from assets being sold as part of the proposed transaction exceeds the transaction-size threshold amount (TSTA) as determined by the Minister and set out in the Canada Gazette yearly, (the 2015 TSTA was $86 million), then the transaction is notifiable. In the case of an acquisition of shares, a transaction will be notifiable where the acquirer is to receive: (i) 20% of the target's voting shares, if any of the shares are publicly traded; (ii) 35% of the target's voting shares, if none of the shares are publicly traded; or (iii) 50% of the target's voting shares, if the acquirer already owned either 20% (in the case of a public company) or 35% (in the case of a non-public company) of the target's voting shares. (Competition Act, s. 110)

Where a transaction is notifiable, parties to a transaction may not complete a proposed transaction before the expiration of 30 days after the receipt of a complete notification by the Commissioner (Competition Act, s. 123(1)(a)). Furthermore, where the Competition Bureau has requested additional information (known as a Supplementary Information Request) to evaluate the transaction, parties to a transaction must wait an additional 30 days before completing the transaction (Competition Act, s. 123(1)(b)). Besides being subject to a potential dissolution order, failure to comply with this section may constitute a criminal offence and could result in a fine of up to $50,000 (Competition Act, s. 65(2)).

2. Consider whether sufficient information is available to apply for an Advance Ruling Certificate (ARC)

Parties to a proposed transaction may apply for an ARC in lieu of, or in addition to, notification. The Commissioner may issue an ARC where he or she finds there are insufficient grounds to challenge a proposed merger or acquisition (Competition Act, s. 102(1)). After an ARC has been issued, the Commissioner may not challenge a proposed transaction provided it has been completed within a year of the issuance of the ARC (Competition Act, s. 103). Where an ARC is denied, the Commissioner may issue a No-Action Letter instead, indicating the Commissioner does not, at that time, intend to make an application to the Tribunal.

Parties applying for an ARC should submit information that speaks to the factors the Tribunal will look into when considering whether a merger or acquisition prevents or lessens competition substantially, such as, the presence or absence of foreign and domestic competition, whether parties to a merger are otherwise likely to fail, the existence of acceptable substitutes, any barriers to entry, and the nature and extent of innovation.

The Act provides that where the information supplied in an ARC request is substantially similar to the information required when submitting a notification, parties to a proposed transaction may be exempted by the Commissioner from the Act's notice requirements (Competition Act, s. 113(c)). However, when a transaction is large and complex and there is a possibility the ARC request will be rejected, it might be beneficial for parties to a notifiable transaction to submit an ARC as well as notice, in order to trigger the 30-day statutory waiting period.

For more detail on the pre-merger notification and ARC regime please consult the Competition Bureau's Procedures Guide for Notifiable Transactions and Advance Ruling Certificates Under the Competition Act.

The author would like to thank Michael Viner, articling student, for his assistance in preparing this legal update.

Norton Rose Fulbright Canada LLP

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