On July 28, 2008, Canada's Department of Transport ("Transport Canada") released draft Guidelines for Mergers & Acquisitions involving Transportation Undertakings (the "draft Guidelines") regarding the new merger review provisions of the Canada Transportation Act ("CTA") that came into force in June 2007.1 Transport Canada is seeking comments on the draft Guidelines, as well as on whether to exempt certain classes of transactions from the CTA merger review provisions, by September 30, 2008.
Under the CTA merger review provisions, any proposed transaction that is required to be notified under the merger provisions of the Competition Act and which "involves" a federal "transportation undertaking" must also be notified to the Minister of Transport. The Minister must then determine whether the proposed transaction "raises issues with respect to the public interest as it relates to national transportation". If not, there is no further review under the CTA. If, however, the Minister determines that such public interest issues are raised, then the transaction cannot be completed unless approved (potentially subject to modifications or conditions) by Cabinet.
The purpose of the draft Guidelines is to inform parties regarding: (i) the factors that may be considered in determining whether a transaction raises public interest issues relating to national transportation; and (ii) the process for, and information to be included in, filing a notice to the Minister of Transport. The draft Guidelines were prepared in consultation with the Competition Bureau and the Canada Transportation Agency.
Public Interest Factors
The draft Guidelines set out a series of "public interest factors" relevant to determining whether a proposed transaction raises public interest issues relating to national transportation. The following is a summary of those factors, grouped under the headings in the draft Guidelines:
Economic
- Impacts on users of the transportation system, notably
the impacts on prices, levels of service, and access to
services and facilities.
- Impacts on communities, including impacts on the
development, viability and location of a non-transportation
industry (such as the tourism industry), on labour and
employment, and on availability of affordable service in
low-density markets.
- Impacts on other transportation undertakings, such as
impacts on intermodal connections and supply to other
transportation undertakings.
- Impacts on "Canadian competitiveness",
including impacts on leadership, management and workforce
expertise, harmonization and productivity improvements,
trade, gateways and corridors, innovation, technology and
R&D, taxation and government expenditure.
- Impacts on the costs and financial viability of the
entity resulting from the merger.
Environmental
Capacity to improve the quality of life and the environment by reducing congestion and pollution.
Safety
- Potential to improve safety in the workplace and in our
communities.
Security
- Transactions should not have an adverse impact on
Canada's capacity to protect its citizens and to respond
to any threat. Where change of control of a key undertaking
is proposed, reliability of the new owners could be a
relevant public interest factor.
Social
- Impacts on low income workers and families, access to
transportation for people with disabilities, accountability
and transparency, culture, and Canadian sovereignty may also
be public interest factors.
Many of the above factors are economic in nature and overlap issues dealt with under the Competition Act (e.g., impact on prices, service quality and Canadian competitiveness). Thus, the draft Guidelines should clarify that the Minister of Transport will not be reviewing a proposed merger where it only raises public interest issues that relate to competition.
In addition, where an acquirer is foreign and the transaction is subject to a "net benefit to Canada" review under the Investment Canada Act, it would assist for the draft Guidelines to clarify the scope for public interest merger review under the CTA.
Notice Under the CTA
The draft Guidelines indicate that the notice to the Minister should include the information required to be provided to the Commissioner of Competition under the Competition Act, as well as the information "filed with the Commissioner". However, this would appear to be unnecessarily broad, given that the CTA merger review provisions do not include an obligation to provide information filed with the Commissioner other than that specifically required to be provided under the Competition Act. Moreover, much of the information provided to the Commissioner would typically go beyond that which would be relevant to the Minister of Transport.
The draft Guidelines also call for the filing of a "Public Interest Impact Assessment" with a notice to the Minister and provide an extensive list of information that should be contained therein. This includes:
- a description of the proposed transaction, the parties
and the objectives of the transaction;
- the parties' assessment of relevant public interest
impacts related to the public interest factors set out above
and any information with respect to these impacts;
- a description of any proposed mitigation or remediation
of adverse public interest impacts;
- identification of major stakeholders who may be
interested in the transaction (shippers, passengers,
customers, suppliers, other levels of government, the general
public, etc.);
- a description of any consultation which has taken place
with affected stakeholders prior to notification; and
- identification of any other government approvals required
to complete the transaction.
This list is generally reasonable, although to some extent overlaps information that will already be obtained through the Competition Act filing (e.g., description of the transaction, parties and objectives, and list of customers). Also, many cases will raise no conceivable public interest concerns, so it is expected that much of this information will be inapplicable or unnecessary.
Potential for Exempted Classes of Transaction
It is welcome that Transport Canada is inviting input on classes of transactions to exempt from the CTA merger review provisions. However, the issue could be more effectively addressed if the Minister were first to provide guidance on the threshold question of determining when a transaction "involves" a federal "transportation undertaking".
For example, where only the acquirer, and not the acquired business, is a transportation undertaking, this could be excluded from the definition of a transaction (i.e., acquisition) that "involves" a transportation undertaking. Alternatively, it could be included, but expressly exempted from the CTA merger provisions. Either way, this issue should be addressed. It is important, for example, that a Canadian transportation undertaking seeking to acquire a non-transportation business not be subject to CTA provisions that do not apply to other potential acquirers.
Another possible exemption (or exclusion from the definition of "involves a transportation undertaking") could be for transactions where the transportation undertaking is merely ancillary to the main business.
More fundamentally, exemptions could extend to all but the air and rail sectors, which seem to be the true focus of the CTA merger review provisions. For example, it is difficult to conceive how transactions involving trucking, buses or taxis could raise public interest issues.
Footnote
1 The draft Guidelines and accompanying notice are available at http://www.tc.gc.ca/pol/en/acg/acgb/mergers/guidelines-draft.htm and http://www.tc.gc.ca/pol/en/acg/acgb/mergers/guidelines-draft.htm. In June 2007, Davies published a Perspective on the new CTA merger provisions, which is available at http://www.dwpv.com/en/17623_21188.aspx.
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.