Previously published in Antitrust Report, issue 3, 2007.
The Canadian pre-merger notification and review process, like those in other jurisdictions, has strengths and weaknesses. Legislative flexibility coupled with pragmatic enforcement by the Competition Bureau (the Bureau) has resulted in a system that imposes a light regulatory burden on parties to transactions that do not give rise to substantive competition law issues. At the other extreme is the eviscerated role of the Competition Tribunal (the Tribunal), which has effectively allowed the Bureau to enforce the Competition Act1 without adequate judicial oversight in all but a handful of cases.
Fortunately for stakeholders, the strengths of the Canadian system largely outweigh its weaknesses. Indeed, along the spectrum of the world's merger regimes, the Canadian system ranks among the best by objective measure. For example, it is almost fully compliant with the merger review best practices developed by the International Competition Network (ICN).2
This article provides some reflections on the key features of the Canadian system and offers some modest proposals for reform. Although an ideal process is unlikely to ever be achieved, this should not deter stakeholders in Canada from reviewing the current system of merger review with a critical eye and open mind, and to proactively push for improvements.
JURISDICTION AND NOTIFICATION THRESHOLDS
The Act generally requires pre-merger notification for transactions that exceed certain financial thresholds and, in transactions involving share acquisitions, levels of share ownership. The size-of-the-parties threshold is satisfied where the parties to a transaction, together with their affiliates, have assets in Canada or have annual gross revenues from sales in, from or into Canada that exceed C$400 million in the aggregate. The size-of-the-transaction test varies depending on the type of transaction, but is generally satisfied where the target's Canadian assets or revenues generated from those assets exceed C$50 million.3
In important contradistinction to many regimes in Europe and elsewhere, the Bureau has jurisdiction over all mergers, not only those that satisfy the notification thresholds, with "merger" being very broadly defined. For the purposes of the Act, a "merger" is "the acquisition or establishment, direct or indirect, by one or more persons, whether by purchase or lease of shares or assets, by amalgamation or by combination or otherwise, of control or significant interest in the whole or part of a business or a competitor, supplier, customer or other person."4 Although the Act defines "control,"5 it is silent on the meaning of "significant interest." The MEGs provide some guidance, describing that the acquisition or establishment of a "significant interest" in a business will occur "when the person acquiring or establishing the interest obtains the ability to materially influence the economic behaviour of the business."6 In practice, the Bureau takes a very expansive view of when an interest may be significant.
The factors the Bureau will consider in determining whether the acquisition or establishment of a "significant interest" constitutes a merger include the relationship between the parties prior to the transaction; the likely relationship between the parties subsequent to the transaction; the access that an acquiring party obtains to confidential business information of the target business; and any evidence of intentions to affect the behavior of the target business or to change the behavior of the acquiring party.7
While the Canadian notification thresholds are compliant with ICN Recommended Practices8 — they are clear and understandable, and are based on objectively quantifiable criteria and information that is readily accessible to the merging parties — reasonable observers may differ as to whether or not the current notification thresholds are sufficiently high. Nearly a decade ago, the Competition Law Section of the Canadian Bar Association (CBA) noted that an increase in the financial thresholds would be "the single most effective way" of decreasing the burden imposed by the pre-merger notification process.9 The CBA suggested that the size-of-the-parties threshold be increased to C$500 million and the size-of-the-transaction threshold be increased to C$50 million. In 2003, the size-of-the-transaction threshold was increased to C$50 million10 but the C$400 million size-of-the-parties threshold was left at the level of its introduction in 1986.11 When the thresholds were introduced, pre-merger notification was intended to be required only in a very small number of cases, a position that reinforces the thought that consideration ought to be given to increasing the thresholds.12
While the Act contemplates that periodic adjustments to the notification thresholds may be made, this power has rarely been exercised. It is difficult to understand why this has been the case. Under the Investment Canada Act, for instance, thresholds are annually adjusted to remain consistent with the Consumer Price Index. A simple way to make the pre-merger notification process more efficient and effective would be to reduce the Bureau's workload. In the Bureau's 2006–2007 fiscal year, there were 263 reviewable transactions, the vast majority of which were non-complex.13 Even if increasing thresholds would make a small number of potentially problematic deals non-notifiable, that may be a reasonable price to pay if it frees Bureau staff to concentrate on remaining cases.
It may also be worth considering whether there ought to be different thresholds for sector-specific transactions. The current thresholds may be "determined as of such time and in such manner as may be prescribed, or such greater amount as may be prescribed,"14 language that may permit thresholds for different types of transactions to be introduced by way of regulation. For example, it may be desirable to have a higher size-of-the-parties threshold in transactions where the parties are financial institutions, given that such parties usually have disproportionately large assets and revenues relative to many industries. Similarly, where a transaction involves the acquisition of real property, it may be worth considering a higher size-of-the-transaction threshold (in lieu of, for example, an exemption from pre-merger notification altogether). The potential pros of different thresholds should, of course, be balanced against the cons, notably the ICN Recommended Practices' principle that stakeholders are best served by thresholds that are "clear, understandable, easily administrable, bright-line tests."15
EXEMPTIONS TO NOTIFICATION REQUIREMENT
The Act and the Regulations exempt 12 types of transactions from the pre-merger notification requirements.16 Except for exemptions relating to intra-company transactions, the issuance of an advance ruling certificate (ARC), or where the Commissioner has waived the obligation to notify and supply information because substantially similar information was previously supplied in relation to a request for an ARC, most of these exemptions are either rarely available in practice or too narrowly drafted to capture a borderline transaction.
While the Act contemplates the addition of further exemptions through regulation,17 only one exemption, for asset securitization transactions, has been added to date.18 (The process for introducing the exemption was lengthy and by the time it was introduced, there was a perception that asset securitization transactions had become less common.) A Consultative Panel in 1996 noted that stakeholders raised "the need for further exemptions from notification" and the Panel recommended that the Bureau "consider other types of exemptions and invite interested parties to bring forward additional suggestions for consideration."19 Other than the asset securitization exemption, there was apparently little takeup for the idea of adding new exemptions. True, the length of time to develop and introduce exemptions, as illustrated by the asset securitization example, may create practical problems regarding their utility. However, not all exemptions will (or should be) time-sensitive and additional exemptions could reduce the regulatory burden on merging parties, as well as on the Bureau's limited resources.
Numerous classes of transactions that do not raise material competition law concerns may nevertheless be notifiable. Income trust conversions have been a source of particular controversy of late. In these transactions, shares of a corporation were exchanged for trust units, sometimes in the context of public offerings. The net effect of conversions were competitively neutral because management of the businesses remained unchanged; even in the public offering context, units would be widely held. The conversions were nevertheless viewed as notifiable transactions for technical reasons (relating in part to a definition of "affiliate" that excludes trusts). Although changes to the tax treatment for income trusts has dampened market enthusiasm for trust conversions, the experience highlighted the desirability of a process by which new classes of transaction could quickly be made exempt.
It is noteworthy that in the United States, the number of available exemptions is more than double the number of exemptions available in Canada.20 Although this is not a completely fair comparison because some of the exemptions on both sides of the border relate to the peculiarities of the notification regimes in each jurisdiction, the number of U.S. exemptions alone suggests that the Bureau may wish to give more thought to introducing additional exemptions. Importing or adapting U.S. exemptions for real estate transactions and transactions involving carbon-based mineral reserves might be a starting point.
The Bureau currently charges a C$50,000 filing fee for merger notifications. The fee is also exigible where parties to non-notifiable transactions seek formal written responses from the Bureau, such as a no-action letter or an ARC. The Bureau has recently expressed a desire to informally reconsider its fee-charging policy, but government fiscal conditions and the lack of better alternatives suggest that the current fee structure will stay in place for the foreseeable future.
That said, the present flat-fee policy has been subject to criticism, in part because it effectively results in parties to non-complex mergers subsidizing the cost of reviewing substantively complex mergers. Although this is essentially unfair, the difficult question is whether there is a preferable alternative.
An option used in some countries is a sliding scale fee based on review time or transaction complexity. However, such a scheme suffers from significant shortcomings, including the administrative difficulty associated with implementation; the first merger in a particular industry subsidizing the costs of subsequent reviews; and the financial incentive it would give to the Bureau to delay reviews.21 Another alternative is a sliding scale fee based on party or transaction size, as in the United States. Some argue that this alternative suffers from the same shortcomings as the current system in that small transactions that can be reviewed quickly may effectively subsidize the cost of large transactions that require longer review. On the other hand, some stakeholders have perceived that very large transactions typically are subject to longer review by the Bureau. If this is true, a sliding scale fee based on party or transaction size could be an appropriate alternative. Furthermore, if based on criteria that are easy to calculate such as asset value or revenue, this approach may not be difficult to administer by the Bureau or merging parties.
Another question is the amount of the fee. During the infancy of the user-fee framework, the Bureau considered three possible methods to be suitable when determining the proper amount to levy on merging parties. Each method was tied to a measure of the completion time for a merger review: the average completion time, median completion time and a mid-point between average and median completion time. Each of these measures, however, subjected parties to a great deal of variation in the possible fees they may be charged. For instance, in 1993, the average cost of a merger review was C$19,600, whereas the median cost was C$3,900, resulting in a mid-point cost in the range of C$12,000 to C$15,000.22
The question of the appropriate fee raises a fundamental policy question. Who should bear the burden of funding a merger review: the merging parties seeking to benefit from the merger or the public, which benefits from increased competition through the proper enforcement of competition laws? At the outset, the median cost alternative was thought to effectively be a government subsidization of costly merger transactions. By 1997, however, the Bureau acknowledged that "given the general public also benefits from effective enforcement and administration [of the Act], the Bureau [seeks] only partial recovery of the costs involved. In keeping with the federal government's principle of fairness, the cost of providing service in this area continues to be partially appropriated through general taxation."23
COMPLIANCE WITH NOTIFICATION RULES
It is a criminal offense to fail to notify the Commissioner of a proposed transaction or to consummate a proposed transaction prior to the expiry of the statutory waiting period.24 Violations are punishable by a fine of up to C$50,000 each. Although the financial penalty for failure to file is equal to the filing fee, multiple counts are possible and the stigma of a criminal conviction is likely sufficient to deter would-be violators.
Notably, it is only an offense if the failure to file was done without "good and sufficient cause." The phrase has not been judicially considered in the context of the Act — indeed, there has never been a conviction for failure to file — but this language must surely be designed to give merging parties comfort when making difficult but good-faith assessments whether there is a filing obligation. It is difficult to see the Bureau recommending a prosecution, much less securing a conviction, in a tough case where a reasonable analysis was made. It has also been suggested that the language may give parties a way out of situations in which "it was unknown until after a merger transaction was completed that . . . pre-notification should have been provided."25 Indeed, as the acquisition of as little as 20% of the voting shares of a public company can be a notifiable transaction, merger parties occasionally inadvertently fail to file. (In most cases, this is easily rectified by making a corrective filing.) A more difficult hypothetical situation might be one in which an informed no-file decision was consciously made in the face of a conflicting Bureau Interpretation Guideline or informal advice from the Bureau's Merger Notification Unit.
Pre-merger coordination, or "gun-jumping,"26 is typically less of a concern in Canada than in the United States. While it is true that a transaction may not be completed prior to the expiration of the waiting period, merging parties may have greater latitude in their dealings with each other during the waiting period and prior to the completion of the transaction. The only merger-related prohibition is that the transaction may not close prior to the expiry of the waiting period. Barring any cartel-related concerns, a considerable degree of pre-merger coordination may be permissible under Canadian law.
Although Canada may grant a relatively permissive scope of activities to merging parties during the waiting period, parties should not view their activities as being without legal consequence so long as they fall short of completion of the transaction. Significant transfers of competitively sensitive information, the integration of operations or any coordination in the marketplace may, as noted, raise issues under the conspiracy, price maintenance and other anti-cartel offenses in the Act. In R. v. Béton Régional Inc.,27 two companies in the cement industry in Quebec became the subject of a Bureau conspiracy investigation because of their activities prior to approval of their merger, which ultimately did not proceed. As part of the agreement in principle, the purchaser assumed control over a subsidiary and also asked the seller to raise the price of ready-mix concrete, to which the seller obliged. The case was resolved when the sellers consented to an issuance of a court order prohibiting them from engaging in certain activities.
Where a transaction is notifiable, the parties may choose to make either a short-form notification filing or a long-form notification filing. Where a short-form notification filing is made, the Commissioner may require the parties to provide long-form filing information.28 The information requirements for filings are contained in the Notifiable Transaction Regulations29 with the scope of the filing varying according to the type of filing made (i.e., short-form or long-form) and the nature of each party's operations in Canada.
The practical utility of some of the additional information requirements of a long-form filing is questionable. For example, in an era where prospectuses and continuous disclosure documents of public companies are widely available, it is likely not necessary for merging parties to provide "a copy of every proxy solicitation circular, prospectus and other information form filed with a securities commission, stock exchange or other similar authority in Canada or elsewhere, or sent or otherwise made available to shareholders within the previous two years."30 Nor is it clear why the Bureau requires copies of proxy solicitation circulars and annual information forms filed within the previous two years because these documents are updated annually and do not often change significantly year to year. These and other information requirements suggest that it may be time for the Bureau to reconsider the information required from merging parties in notification forms.
The most notable absence from the short-form and long-form filing requirements is the lack of any requirement to provide an analysis of the competitive issues. This is almost always rectified in practice by merging parties voluntarily submitting this information in addition to their notification filings. The attractive feature of the current process is its flexibility, and the form requirement that all information be submitted under oath may make it difficult as a practical matter to provide an analysis of competitive impact. It would be difficult to ask a businessperson to swear, for example, to the accuracy of a market definition. On the other hand, if the Bureau were to revisit the form requirements, it may also wish to reconsider whether information needs be submitted under oath. ARC applications are not sworn, for instance, and that does not give rise to material concerns. A general prohibition on the intentional submission of false information may suffice to capture the rare offender and would allow Bureau staff to require competitive impact information in the filings.
Also noteworthy, but of less materiality, are the unusual discrepancies between the filing form information requirements set out in the Regulations and those set out in the forms themselves, which do not form part of the Regulations. The form requires more information than the Regulations require, including fax numbers for customers as well as additional information about the annual volume or dollar value of purchases. Housekeeping amendments to the form and Regulations, as suggested above, are therefore likely overdue.
Despite the foregoing, the forms themselves are generally well-constructed, flexible and user-friendly. They are not too onerous in their information requirements, in part because parties are given the option of not providing information that is not known or reasonably obtainable, or not relevant to the Commissioner's assessment of the proposed transaction. This means that the forms can usually be completed quickly, a critical factor in time-sensitive merger transactions.
Advance Ruling Certificates
As an alternative to a pre-merger notification filing, parties to a notifiable transaction may apply for an ARC, which may be issued when the Commissioner is satisfied that she would not have sufficient grounds on which to challenge a proposed transaction before the Tribunal. The issuance of an ARC is discretionary and typically issued only to parties involved in non-complex transactions that do not raise any significant competition law issues. As described above, if granted, an ARC exempts the parties from the notification requirements under the Act.
The ARC process is extremely flexible, particularly since there are no formal requirements regarding the information to be supplied in an ARC application. For the most part, the information supplied depends upon the issues to which a proposed transaction gives rise and counsel's assessment of those issues. ARC applications typically take the form of a letter to the Bureau describing the proposed transaction, the businesses of the parties and the competitive impact of the proposed transaction. The competitive impact description usually includes an assessment of the product and geographic markets in which the parties compete and an analysis of the relevant factors set out in section 93 of the Act to be considered when determining whether a proposed transaction is likely to prevent or lessen competition substantially in a relevant market. Where there are clearly no overlaps (e.g., where buyers are private equity investors), ARC applications can be very short and straightforward. They certainly compare very favorably with requirements in other countries that may require full-blown merger filings with detailed information about the parties' operations, even where there are clearly no issues.
Additional Information Requests
The Bureau may require information beyond that required under Part IX of the Act as part of a pre-merger notification filing in order to complete its review of a proposed transaction. The Bureau's Fee and Service Standards Handbook31 describes the additional information and documentation that the Bureau suggests parties provide to it for merger review purposes. (The Service Standards also outline the information the Bureau may wish to see in an ARC application.)32 For example, the Bureau advises parties that it is helpful if they submit a competitive impact analysis that includes a summary description of product and geographic overlaps, market share estimates and a discussion of the other relevant factors set out in section 93 of the Act.33
The fact that the Bureau has issued Service Standards describing the type of information it usually likes to receive in connection with proposed transactions suggests that the filing forms usually provide the Bureau with inadequate information. This is not to be equated with the U.S. second request process because much of this additional information is requested in every case. Although the information requirements are usually not onerous or unreasonable, the lack of explicit legislative basis for the Bureau's information requirements has led to some criticism.34
Historically, merging parties provided the Bureau with additional information on a voluntary basis. This was done in part because merger parties knew that the Bureau could compel production if it wanted, as described in more detail below, and also because merging parties generally had a legitimate desire to cooperate with the Bureau. More recently, the Bureau has moved away from voluntary production in favor of compelled production.
Section 11 Order Subpoenas
Depending on the circumstances of a particular matter, written or oral requests for information and documents are also often made to the parties under a court order under section 11 of the Act. In some cases, requests are also made to third parties (e.g., other market participants). These information requests typically cover information and documentation beyond that identified in the Service Standards. The requests tend to focus on documents prepared by the parties in the ordinary course of business relevant to the Bureau's review being advanced by the parties. Formal information requests are often issued where a proposed transaction raises serious merger issues and the Bureau believes there is some likelihood that the matter will come before the Tribunal in contested proceedings.
The issuance of a section 11 order adds significant delay to the merger review process because the section 11 order must be prepared by the Bureau, the parties must respond to the section 11 order by conducting a thorough search of their files for all relevant/responsive documentation and the Bureau must then review the documents that are received. Where a section 11 order is issued, review timing is usually extended by at least four weeks.
Section 11 orders are, by their very nature, disruptive to any business's day-to-day operations. While typically directed at the merging parties, such orders are also often directed at third-party marketplace participants, either major competitors35 or major customers and/or suppliers.36 As section 11 orders are often drafted quickly and without meaningful third-party input, they can result in vague and overbroad requests. Why the Bureau does not request the input of merging parties when drafting a section 11 order is not entirely clear. Where the merging parties are committed to cooperating with the Bureau, it is difficult to see the downside of sharing a draft with them prior to its issuance. As a result of unclear orders, parties often informally agree with the Bureau to "read down" the scope of orders.37 This raises a separate set of concerns, in particular how the Bureau can subsequently ask parties to swear to the completeness of a production when the agency itself does not have the authority to interpret or amend a court order.
As a supplement or alternative to document productions, the Bureau could start the formal phase of its investigations with oral testimonies from key officials of the parties to the proposed transaction. Although this is done, it does not occur frequently. Oral testimony may assist the Bureau significantly in narrowing the scope of the written information requests contained in the order. Even if not, such testimony would itself be relevant to a complex merger investigation and it is not clear why it has not formed a greater part of Canadian merger practice.
TIMING OF REVIEW AND TRANSACTION COMPLETION
A proposed transaction may be completed 14 days following the filing of a short-form notification filing or 42 days following the filing of a long-form notification filing.38 Where a short-form notification filing has been submitted and the Commissioner requires a long-form filing, the waiting period will not begin until the long-form information has been received. Extensions and special waiting periods for acquisitions affected through the facilities of a stock exchange may give rise to different effective waiting periods in special circumstances, but they are not common. No waiting periods are associated with ARC applications, but they are usually dealt with in two weeks.
Actual review periods do not generally correspond to the statutory waiting period, except in non-complex cases. Upon receipt of a filing or ARC, the Bureau categorizes cases as non-complex, complex or very complex. The Bureau undertakes (on a best-efforts basis only) to complete its reviews within 14 days in the case of non-complex transactions; 10 weeks in complex cases; and within five months in very complex cases. These periods have, with some justification, been subject to criticism as being unreliable (see below) and confusing, in part because no other major jurisdiction bifurcates statutory and actual review periods. However, they do serve to give parties a general sense of timing, while at the same time permitting closing if buyers wish to take the regulatory risk of a post-completion challenge.
As described above, once the waiting period has expired, the parties are free to complete the proposed transaction. However, if the Commissioner brings an application to the Tribunal to issue an interim order to prevent the completion of the proposed transaction, the parties may be prevented from completing the proposed transaction despite the expiry of the waiting period. Where a proposed transaction raises issues and a challenge application has been lodged with the Competition Tribunal under section 92 of the Act, the Commissioner may apply to the Tribunal for an interim order. The Tribunal may issue such interim order as it considers appropriate, having regard to the principles ordinarily considered by superior courts when granting interlocutory or injunctive relief (for example, the Commissioner may seek an order preventing the proposed transaction from being completed pending the determination of the Commissioner's challenge to the Tribunal).39
Where a proposed transaction raises numerous issues and where an application has not yet been made under section 92, the Commissioner may apply to the Tribunal for an interim order forbidding any person named in the application from doing any act or thing that appears to the Tribunal may constitute or be directed toward the completion or implementation of a proposed transaction. Such interim order may be issued further to an application by the Commissioner provided that (i) where the Commissioner certifies that an inquiry is being made and where, in the Commissioner's opinion, more time is required to complete the inquiry, the Tribunal finds that in the absence of an interim order a party to the proposed transaction or any other person is likely to take an action that would substantially impair the ability of the Tribunal to remedy the effect of the proposed transaction on competition because that action would be difficult to reverse; or (ii) the Tribunal finds that the merger notification provisions have been contravened in respect of the proposed transaction.40
It is rare that the Bureau will complete its review of complex or very complex transactions within the 14- or 42-day waiting periods. In such cases, merging parties historically waited for the Bureau to complete its review or worked with the Bureau to craft a remedy that would allow for completion of the transaction in a manner that did not disrupt review timing. The proposed acquisition of Lakeport Brewing Income Fund by Labatt Brewing Company Ltd. in 2007 was a high-profile departure from typical practice. In that case, the Bureau advised the parties that it would not have time to complete its review prior to the expiry of the waiting periods and that it believed the transaction raised potentially significant substantive issues. Labatt planned to close the acquisition after the expiry of the waiting period in any event but offered to implement a hold-separate arrangement that would delay integration of the Lakeport business for 30 days to allow the Bureau more time to complete its review. The Commissioner rejected Labatt's proposal and filed an application with the Tribunal for a temporary injunction under section 100 of the Act.
Section 100 provides that the Tribunal may issue an interim order preventing the completion or implementation of a proposed merger where the Commissioner has demonstrated that (i) an inquiry is being made into the merger; (ii) more time is required to complete the inquiry; and (iii) a party to the proposed merger is likely, in the absence of an interim order, to take an action that would substantially impair the ability of the Tribunal to remedy the effect of the proposed merger on competition under section 92 because that action would be difficult to reverse.
The Tribunal held that the "Commissioner did not show that the acquisition prevented the Tribunal from imposing remedies which could be sufficient to remedy the [substantial lessening of competition], and that by losing the possibility of forbidding the merger, the Tribunal was substantially impaired."41 Accordingly, the Tribunal dismissed the Commissioner's application on the basis that she had not established her burden under section 100. Labatt was permitted to proceed with its acquisition of Lakeport without any restraint on its ability to integrate the two businesses. The Commissioner is appealing the Tribunal's decision.
Whether or not the decision will signal a more adversarial review process remains to be seen. Even if the Commissioner loses her appeal, it is not clear that section 100 has become irrelevant. The Commissioner must simply lead more evidence as to how closing would substantially impair the ability of the Tribunal to implement an effective remedy. In any event, in any given year there are very few merger cases that raise significant competition issues and are as time-sensitive as stressed by Labatt in this case. One way or another, the Labatt decision is simply unlikely to affect process timing in the vast majority of merger cases.
If the decision is upheld on appeal, the Commissioner will likely propose an amendment to the Act to make it easier to obtain injunctive relief.42 While understandable, it would be a shame to see such a knee-jerk reaction to a single lost case. True, Canada's review periods would be among the shortest in the world — certainly much shorter than a full-blown U.S. second request or Phase II in Europe.43 But further litigation could clarify the section and the circumstances in which time extensions would be appropriate through jurisprudence. Moreover, if the Act's initial review periods are primarily designed to give the Bureau a quick preliminary look at a transaction in order to make a challenge decision, 42 days may in fact be adequate.
Even some classes of non-complex cases have given rise to timing uncertainty after the Bureau recently started giving increased scrutiny to non-complex mergers involving a small degree of competitive overlap. Although the Bureau should not require much information to reach a no-challenge decision in such cases, it has recently been making marketplace inquiries in at least some cases. The shift seems inconsistent with the Bureau's own Service Standards (which do not require the provision of customer and supplier information in non-complex cases in which post-merger shares are under 10%), and if it becomes more widespread could threaten to tie up Bureau and private sector resources in unnecessarily lengthy agency reviews.
ROLE OF THIRD PARTIES
The Bureau regularly contacts competitors and other marketplace participants in the course of its review of a proposed transaction involving substantive overlaps between the activities of the merging parties.44 The Commissioner may use information provided by competitors to assist in, for example, defining the relevant market and determining market share. These third parties may voluntarily provide information to the Commissioner or the Commissioner may compel production by seeking an order under section 11. While information provided, voluntarily or otherwise, may be helpful to the Commissioner in making her determination, the opinions of competitors are, or should be, met with a high degree of scrutiny, particularly where competitors could benefit from a negative review.
Third parties may also have a role in contesting consent agreements entered into by the Commissioner with the merging parties as well as intervening in contested merger proceedings, although the latter is very rare.45 Third parties directly affected by a consent agreement may seek to persuade the Tribunal to rescind or vary the terms of a settlement after it has been finalized and registered if they can show that the Tribunal could not have ordered the remedies that appear in the terms of a consent agreement.46 In order for a third party to be "directly affected," it must experience "first hand a significant impact on a right which relates to competition or on a serious interest which relates to competition. The impact must be definite and concrete (i.e., not speculative or hypothetical) and must be caused by the consent agreement and not by another agreement or obligation."47 This narrow interpretation of "directly affected" effectively limits the intervention right to third parties that are customers, suppliers or existing or potential competitors.48
The high costs, long duration and uncertain outcome of contested proceedings before the Tribunal places considerable pressure on merging parties to settle cases early. The Commissioner's ability to enter into effectively binding consent agreements adds to this pressure. The early involvement of third parties in the Bureau review process is usually necessary in order to meaningfully influence outcomes. For a third party interested in influencing the Bureau's decision making, this means getting proactively involved early in the review process, focusing on substantive competition issues and backing arguments with high-quality factual, economic and legal support.
ARCs And No-Action Letters
ARCs and no-action letters are the typical outcomes of merger reviews. A no-action letter is a notice to the merging parties that the Commissioner has completed her review and has no current basis upon which to challenge the proposed transaction. The Commissioner retains the right to reopen her file and potentially challenge a transaction up to three years after closing, although in practice files are never re-opened. If a no-action letter was issued in response to an ARC application, parties are still technically subject to the pre-merger notification requirements unless a waiver is granted — but that is always done.
If an ARC is issued, the Commissioner may not challenge the transaction following completion unless she has reason to believe that she was not supplied with all information relevant to the substantive review of the transaction. Although the Commissioner has never challenged a transaction after an ARC was issued, the Bureau has re-opened its file in at least one instance, following receipt of marketplace information that suggested the information in the initial ARC application was wrong or misleading.
Lack Of Transparency
The Bureau's Merger Notification Unit (MNU) has also developed a set of very helpful Interpretation Guidelines (IGs) that provide useful guidance on the Bureau's approach to some of the more technical aspects of the Act's pre-merger notification requirements. Although the MNU is understood to be in the process of developing two additional IGs — a welcome development — a greater amount of disclosure of its general enforcement policy would be helpful.
The MNU is very good at providing informal over-the-telephone advice to merging parties on technical notification issues, but only merging parties benefit from such advice. The private bar would benefit from the adoption of a U.S.-style practice whereby the counsel to the merging parties would have the option of sending follow-up letters to the MNU summarizing the facts, issues and oral advice, and the MNU would post the letters (redacted where required) to its website.49
There is also little case-specific decision-making transparency. Most mergers result in no-challenge decisions, and few cases are decided by the Tribunal (and current procedures do not require the submission of competitive impact submissions in consent proceedings). The Bureau, in other words, is usually the effective decision maker and has no statutory or other legal obligations to issue reasons for its decisions. That is not to say that this is satisfactory. It is not. It gives the Bureau considerable discretion to decide cases unfettered by its decisions in past cases and leaves merging parties, third parties and the public in the dark on key issues relating to the Bureau's competitive-effects analysis in particular cases.
There has been a modest amount of improvement of late. In April 2005, the Bureau issued a policy statement stating that it may "issue a technical backgrounder describing its analysis in a particular investigation, and the reasons underlying its final conclusions."50 The Bureau also acknowledged that "[g]reater transparency helps to inform the public about the Competition Bureau's work and encourages compliance with the law."51 Since this policy was introduced in 2005, the Bureau has published 12 technical backgrounders on merger cases,52 but efforts here appear to be slowing. At the time of writing, only two backgrounders have been published in 2007, although at least one more is likely to be published before the end of the year. While the Bureau's efforts to improve transparency in this area are noted, it is disappointing that so few backgrounders have been published, particularly because backgrounders provide useful and relevant information to the private bar.
Lack Of Effective Tribunal Oversight
As currently drafted, the Act contemplates a scheme whereby the Bureau has jurisdiction to investigate the competitive effects of a merger and the Tribunal decision-making and remedial powers. In fact, the Tribunal has played a small role of limited importance in the context of Canadian merger review and has considered only a handful of contested cases. The effective combination of investigatory and decision-making authority in the Bureau gives rise to obvious concerns about impartiality.
An interesting alternative (hybrid) approach has been adopted in South Africa, where the Competition Commission is the principal decision maker for small and intermediate mergers53 and the Competition Tribunal is the decision maker for large mergers.54 Under the South African model, the Competition Commission must reach a decision within 20 business days (this period may be extended up to a maximum of 40 business days). If the Competition Commission does not act within the deadline, the merger is deemed to have been approved. In the case of a large merger, the Competition Commission has 40 business days to consider and refer the merger to the Competition Tribunal. (The time period may be extended by the Competition Tribunal 15 days at a time.) Within 10 business days of the referral, the Competition Tribunal must schedule a pre-hearing or hearing and within 10 business days of the hearing, the Competition Tribunal must approve or prohibit the merger and issue reasons for its decision within 20 business days of approval or prohibition.55
The decision-making timeframes of the South African Competition Commission are noteworthy in being short; and the role of the Competition Tribunal is noteworthy in being robust. These are elements that Canadian policy makers may wish to consider in any re-evaluation of the Act's system of merger control.
Like merger regimes elsewhere, Canada's Competition Act has notable strengths and weaknesses. Timetables that are more dependable and a role for an independent decision maker that is more prominent rank high as areas where consideration ought to be given to making improvements. But overall, the system has worked extremely well since its introduction in the mid-1980s and in many areas sets global standards for effectiveness and efficiency.
1. R.S.C. 1985, c. C-34, as amended (the Act).
2. See International Competition Network, "Recommended Practices for Merger Notification Procedures" (Paper delivered to the First Annual ICN Conference, Naples, Italy, 28–29 September 2002), online: International Competition Network http://www.internationalcompetitionnetwork.org/media/archive0611/mnprecpractices.pdf (ICN Recommended Practices).
3. Ibid., ss. 109 and 110.
4. Supra note 1, s. 91. See also Competition Bureau, Merger Enforcement Guidelines (September 2004), online: Competition Bureau http://www.competitionbureau.gc.ca/PDFs/2004%20MEGs.Final.pdf (MEGs) at para. 1.6.
5. See supra note 1, s. 2(4).
6. See MEGs, supra note 4 at para. 1.5. Such economic behavior may include decisions relating to pricing, purchasing, distribution, marketing, investment, financing or the licensing of intellectual property rights.
7. Ibid. at para. 1.13.
8. ICN Recommended Practices, supra note 2.
9. Competition Law Section, Canadian Bar Association, Submission on Proposed Amendments to the Notifiable Transactions Regulations under the Competition Act (July 1999), online: National Competition Law Section http://www.cba.org/CBA/sections%5FCompetition/pdf/99-24-e.pdf.
10. SOR/2003-104, s. 1.
11. Interestingly, the first version of Bill C-91 on December 17, 1985 included a C$500 million size-of-the-parties threshold. See Bill C-91, An Act to establish the Competition Tribunal and to amend the Combines Investigation Act and the Bank Act and other Acts in consequence thereof, 1st Sess., 33rd Parl, 1985.
12. Lawson A. W. Hunter, "The Combines Investigation Act: Proposed Amendments (Bill C-29) and Update" (Paper presented to the Continuing Legal Education Seminar, Canadian Bar Association, Ontario and the Law Society of Upper Canada (9 June 1984)) at 21.
13. Competition Bureau, Merger Review Performance Report (2007), online: Competition Bureau http://www.competitionbureau.gc.ca/PDFs/MergerReview2007-e.pdf at 9.
14. Supra note 1, ss. 109 and 110.
15. ICN Recommended Practices, supra note 2 at 2.
16. The 12 types of exempt transactions under the Act and its regulations are: (a) an acquisition of real property or goods in the ordinary course of business; (b) an acquisition of voting shares or of an interest in a combination solely for the purpose of underwriting the shares or the interest; (c) an acquisition of voting shares or of an interest in a combination or assets that would result from a gift, intestate succession or testamentary disposition; (d) an acquisition of collateral or receivables, or an acquisition resulting from a foreclosure or default or forming part of a debt workout, made by a creditor in or pursuant to a credit transaction entered into in good faith in the ordinary course of business; (e) an acquisition of a Canadian resource property pursuant to an agreement in writing that provides for the transfer of that property to the person(s) acquiring the property only if the person(s) acquiring the property incur expenses to carry out exploration or development activities with respect to the property; (f) an acquisition of voting shares of a corporation pursuant to an agreement in writing that provides for the issuance of those shares only if the person(s) acquiring them incur expenses to carry out exploration or development activities with respect to a Canadian resource property; (g) a combination that is a joint venture; (h) a transaction involving affiliates of each other; (i) a transaction under the Bank Act, the Cooperative Credit Companies Act, the Insurance Companies Act or the Trust and Loan Companies Act, which the Minister of Finance has certified to the Commissioner that such transaction is, or would be, in the public interest; (j) a transaction in respect of which the Commissioner has issued an ARC; (k) a transaction in respect of which the Commissioner has waived the obligation to notify and supply information because substantially similar information was previously supplied in relation to a request for an ARC; and (l) any other types of transaction as may be prescribed (to date, only asset securitizations have been exempt).
17. See subsections 113(d) and 124(1) of the Act.
18. SOR/2000-8, s. 7.
19. Report of the Consultative Panel on Amendments to the Competition Act to the Director of Investigation and Research, Competition Act, Mr. George N. Addy, March 6, 1996, online: Competition Bureau http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=1272&lg=e.
20. See 15 U.S.C. Ch. 1, § 18a (HSR Act) and 16 C.F.R. 802.
21. See Competition Law Section, Canadian Bar Association, Response to Competition Bureau Discussion Paper on the proposal to increase fees and revise its Fee and Service Standards Policy (22 October 2002), online: Submissions to Government http://www.cba.org/CBA/submissions/pdf/02-39-eng.pdf at 6.
22. See ibid. at 4.
23. Competition Bureau, Canada, Competition Bureau Discussion Paper on the proposal to increase fees and revise its Fee and Service Standards Policy (19 August 2002), online: Competition Bureau http://strategis.ic.gc.ca/SSI/ct/feeproposal.pdf at 2. Note that the Real Property Association of Canada has, for instance, been critical of filing fees in the context of real estate transactions since the filing fee thresholders were increased in 2003. While eliminating or modifying the fees charged in such circumstances is an option, adding exemptions for such transactions is of course another. For additional information on the views of the Real Property Association of Canada, see Real Property Association of Canada, "Competition Bureau Fees", online: http://car123.designersi.com/s_29.asp .
24. See subsection 65(2) of the Act.
25. George N. Addy & William L. Vanveen, Competition Law Service, looseleaf (Aurora, ON: Canada Law Book, 1988) at CA-256.
26. For a comprehensive review of pre-merger regulation in the United States, see William R. Vigdor, ed., Pre-merger Coordination: The Emerging Law of Gun Jumping and Information Exchange (Chicago: ABA Publishing, 2006). Parties to a merger "jump the gun" when they stop acting as separate, independent entities (or begin integrating) prior to the completion of the pre-merger review by competition authorities. Parties who are guilty of gun-jumping in the United States may face sanction pursuant to, inter alia, the HSR Act, supra note 20; section 1 of the Sherman Act, 15 U.S.C. Ch. 1, § 1; and section 5 of the Federal Trade Commission Act, 15 U.S.C. Ch. 3, § 45.
27. Federal Court Trial Division, No. T-58- 95, January 16, 1995.
28. Supra note 1, s. 114(2).
29. SOR/87-348, as amended (the Regulations).
30. Ibid., s. 17(e)(xi).
31. Competition Bureau, Canada, Fee and Service Standards Handbook (4 December 2003), online: Competition Bureau http://www.competitionbureau.gc.ca/PDFs/ct02530engl_a.pdf (Service Standards).
32. Ibid. at 14-15.
33. Ibid. at 15-16.
34. In the words of one commentator, the Bureau is "[operating] by administrative fiat unconnected to statutory authority." See Julius Melnitzer, "Art of the Case" (September 2007) Lexpert 99 at 99.
35. See "Canada ditches info request: Canada's Competition Bureau has take in the unprecedented step of withdrawing court production orders issued in the BGM/CHUM merger review," Global Competition Review (2 March 2007), online: Global Competition Review http://www.globalcompetitionreview.com/news/news_item.cfm?item_id=4906. In connection with CTVglobemedia's acquisition of CHUM, the Bureau issued section 11 orders to 34 advertising customers, advertising agencies and broadcasters which the Bureau believed had information essential to its investigation. The orders required the companies to produce extensive data on how television commercials are bought and sold in Canada.
36. See Competition Bureau, Information Bulletin on Section 11 of the Competition Act (November 2005) online: Competition Bureau http://www.competitionbureau.gc.ca/PDFs/infobulletin-section11-cae.pdf at 10. The Bureau has stated that it "may require information from a number of participants in a market and not just those that are the targets of the inquiry." Ibid.
37. While parties and the Bureau have the right under the Act to apply to the Tribunal for an order to vary the section 11 order, such route is not often pursued because of the additional time and costs associated with such application.
38. Supra note 1, s. 123.
39. Ibid., s. 104(1).
40. Ibid., s. 100(1).
41. The Commissioner of Competition v. Labatt Brewing Co. Ltd., 2007 Comp. Trib. 9 at para. 63.
42. See "Corporate Canada nipping at watchdog's heels: Deal makers fume antitrust reviews have become regulatory quagmires. Are they being unjustly critical? The fight is just heating up," The Globe and Mail (25 April 2007) at B10. The Commissioner indicated that "she would consider asking the federal government to go back to the drawing board to further strengthen its powers under Section 100." Ibid.
43. See supra note 20. In the United States, the initial waiting period of 30 days (15 days for cash tender offers) may be extended by requiring the submission of additional information or documentary material relevant to the proposed transaction; such extension enduring for the period required the parties to comply with the request plus an additional 30 days (10 days for cash tender offers). See also EC, Council Regulation 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation),  O.J. L 24/1 at 13. In the EU, a Phase I review may take up to 25 days (35 days if a Member State objects) and for a combination raising serious competition issues, a Phase II review could take up to 90 to 105 working days.
44. Supra note 31 at 12. "[A]n important part of the examination in many complex and very complex cases will be the collection of information from other market participants, including customers, competitors, suppliers, industry associations and government regulatory agencies." Ibid. at 12.
45. Of the four contested merger cases to date, no competitors have intervened in the proceedings, and only in one did a customer intervene. See Canada (Commissioner of Competition) v. Canadian Waste Services Holdings Inc. (2001), 11 C.P.R. (4th) 425 (Comp. Trib.).
46. See subsection 106(2) of the Act.
47. Burns Lake Native Development Corporation et al. v. Commissioner of Competition and West Fraser Timber Co. Ltd. and West Fraser Mills Ltd. 2006 Comp. Trib. 16 at para. 55.
48. See Mark J. Nicholson, Chris Hersh & Yana Ermak "Challenges to Consent Agreements After Burns Lake" (2006), 22:3 Canadian Competition Record 102 at 102.
49. Such practice has developed in the United States. See Federal Trade Commission, "Antitrust Resources–FTC Informal Interpretations," online: http://www.ftc.gov/bc/hsr/informal/index.shtm.
50. Competition Bureau, Policy Statement for the Publication of Technical Backgrounders (28 April 2005), online: Competition Bureau http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=1301&lg=e.
52. Such technical backgrounders include "Johnson & Johnson's Acquisition of the Consumer Healthcare Business of Pfizer Inc." (May 29, 2007), online: Competition Bureau "Proposed Acquisition of Arcelor by Mittal" (October 31, 2006), online: Competition Bureau http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=2224&lg=e; and "Acquisition of Famous Players by Cineplex Galaxy" (July 28, 2005), online: Competition Bureau http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=1921&lg=e.
53. See ibid., s. 11(3)(a). A small merger occurs where the combined assets or turnover of the acquiring firm and the target firm are below R200 million or the target firm's assets or turnover are below R30 million. An intermediate merger occurs where the combined assets or turnover of the acquiring firm and the target firm equal or exceed R200 million and the target firm's assets or turnover equal or exceed R30 million.
54. See Competition Act 1998, No. 89 of 1998, s. 11(3)(b). A large merger occurs where the combined assets or turnover of the acquiring firm and the target firm equal or exceed R3,500 million and the target firm's assets or turnover equal or exceed R100 million.
55. See ibid., s. 14(3), and Competition Tribunal Rules 2001 (South Africa), s. 35.
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