On September 18, 2009, the Competition Bureau published its final Merger Review Process Guidelines, which describe the Bureau's approach to Canada's new two-stage merger review process adopted following the March 2009 amendments to the Competition Act.1 The amendments to the merger provisions created a single form of pre-merger notification with a single, 30-day initial waiting period (eliminating the former "short-form" and "long-form" notifications and their corresponding 14- and 42-day waiting periods). The Commissioner of Competition was also granted the power to issue supplementary information requests ("SIRs") within that initial 30-day period, extending the review period until 30 days following compliance with the SIR.
Throughout the Guidelines, the Bureau makes an express and repeated commitment to minimize the burden of SIRs on merging parties, and stresses that its preferred approach is cooperation. This is good news for the business community, as a cooperative approach should contribute to streamlining the new Canadian merger review process and make it more efficient.
Initial 30-Day Review Period
The Guidelines confirm that the initial 30-day review period begins the day after receipt of a notification determined to be complete by the Bureau's Merger Notification Unit. During this initial 30-day period, the Bureau's objective is to "determine in an efficient manner whether the proposed transaction is likely to result in a substantial lessening or prevention of competition." The Guidelines provide that the Bureau will, as soon as possible during the initial review period, communicate preliminary views on potential competition issues identified to that point in time. Where appropriate, the waiting period will be terminated early by issuance of a no-action letter.
Parties are encouraged to assist in the review of transactions by engaging in early consultations with the Bureau and by responding to requests for information in a timely manner (including requests for voluntary responses made within the initial 30-day period), to identify potential issues with the transaction and to substantiate claims regarding applicable factors or exceptions upon which the parties intend to rely. The Guidelines expressly emphasize cooperation in the early stage, stating that timely compliance with voluntary information requests and timely, up-front communication with the Bureau can minimize the need for, or scope of, a subsequent SIR.
Supplementary Information Requests
Similar to the United States' merger review process, Canada's new, two-stage merger review process allows the Commissioner to issue a SIR within the initial 30-day waiting period. "Second requests" as they are known in the U.S., have been highly criticized for the significant burden and costs they impose on merging parties. In issuing the Guidelines, the Bureau has clearly considered this criticism and has provided much needed guidance on the limited scope and anticipated limited use of the SIR process in the Canadian context. The Guidelines, in fact, confirm that the Bureau does not expect to use the SIR mechanism frequently and that SIRs will be tailored and limited in scope in all but exceptional circumstances.
The Guidelines confirm that the SIR 30-day waiting period will begin upon receipt by the Commissioner, from each recipient, of "a complete response to all information requests set out in the SIR"2, without providing many details as to what full compliance entails. More than half of the Guidelines is devoted to SIRs and the various mechanisms through which the Bureau intends to streamline the SIR process.
Pre-Issuance Dialogue
The Bureau first indicates that it will be open to and encourage dialogue with the parties before issuing a SIR in order to determine how the scope of a SIR can be reasonably narrowed, which may include interviews with the parties. Prior to issuance, the Bureau will generally provide the recipient party with a draft of the SIR and will engage in dialogue with the party's counsel, including in respect of suggested amendments to the contents of a SIR (although it ultimately remains within the discretion of the Bureau to amend and issue a SIR as it considers appropriate). The Guidelines also state that post-issuance dialogue to further narrow the issues or scope of production of records will be the norm.
Restrictions In The Scope Of The Supplementary Information Request
The Guidelines further identify a number of restrictions that the Bureau will follow to limit the scope of SIRs, in all but exceptional cases:
- Number Of Custodians: The Bureau intends to limit the number of custodians to be searched in preparing a SIR to a maximum of 30 individuals. To benefit from this limitation, a party must provide the Bureau with full and complete information on personnel (and their respective roles) and with direct access to key personnel as necessary.
- Time Period: The default search period for hard copies and electronic records prepared or received by the parties will generally be limited to two years from the date of the SIR. The default search period for data requests will generally be limited to three years from the issuance of the SIR.
- Review Of Back-Up Media: A party will not generally be required to produce records contained on backup tapes where sufficient records can be obtained through less onerous means. The Bureau will discuss this with parties on a case-by-case basis instead of specifying a standard number of back-up tapes or a period for which information must be preserved.
- Additional Measures To Manage Burden: The Bureau will consider adopting additional measures to minimize the burden of the merger review process on parties. The Bureau recommends that specific streamlined procedural measures be applied in presenting information to the Bureau.
Bureau Review And Approval
It is interesting to note that the draft Guidelines included a statement that, prior to the issuance of a SIR, a committee composed of four senior members of the Bureau and the Department of Justice would review the request and determine if the additional information requested is needed by the Bureau to complete its investigation and analysis, and that a SIR would not be issued without the approval of the committee. This statement has been deleted from the final version of the Guidelines.
Timing Agreements
The Guidelines also outline some timing agreements that the Bureau will consider with the parties. Some had expected that the new two-stage process would mirror the system in the United States, where so long as the parties do not receive a SIR within the initial 30-day period, the parties could be confident, except in very rare cases, that the reviewing authorities would take no further action.3 The Bureau, through the Guidelines and subsequent public comments, has however made it clear that there will be a third category of transactions in Canada that may take longer than 30 days to review but for which the Bureau does not intend to issue a SIR. In those instances, to allow the waiting period to lapse, the parties will be expected to enter into a "timing agreement" with the Bureau pursuant to which they will typically agree to delay closing until the Bureau's review (or some other milestone) is completed and to cooperate in providing voluntary responses to the Bureau's additional information requests. The Guidelines note that these transactions will typically be those classified as "complex" on the Bureau's complexity classification system. In essence, these timing agreements would reinstate the past practice of many merging parties in "complex" transactions.
International Cooperation
The Guidelines also state that the Bureau will accept access to and copies of information and documents produced to a foreign agency as compliance with the relevant terms of a SIR, provided that they are responsive to the Bureau's request and that the parties provide appropriate confidentiality waivers and that "the parties do not impose restrictions unacceptable to the Bureau with respect to its use of the data and records."
Appeal Procedure
The Guidelines provide for an internal appeal procedure in cases where a party wishes to challenge the scope of a SIR or where the Bureau has alleged that a party has not fully complied with a SIR. In both cases, the appeal mechanism does not involve an independent third party but rather states that a Senior Deputy Commissioner or Deputy Commissioner of a branch other than the Mergers Branch will review the appeal and render a decision within seven business days after the party has provided all requested information.
Implications
The Guidelines provide useful guidance to merging parties on timing issues and on the Bureau's expressed intent to limit the use and scope of the new SIR process. It remains to be seen whether the Bureau will use the SIR process as infrequently as suggested4 and whether the Canadian process will be more successful than its US counterpart. Although the limitations and mechanisms set out in the Guidelines will definitely improve the transparency, predictability and cost-efficiency of the process, the new Canadian SIR process is nonetheless likely to drive up the cost of complex and very complex mergers and acquisitions significantly. Consequently, we remain hopeful that the Bureau will use the SIR process very sparingly.
That being said, the Guidelines make it clear that in the new environment created by the two-stage review process and SIRs, merging parties are invited to be as proactive as they can, as the Bureau considers a cooperative approach to be the best avenue to make the process less burdensome and more efficient.
Footnotes
1. This publication is intended as a supplement and update to Ogilvy Renault LLP's update published on April 8, 2009 on the Bureau's draft Revised Merger Review Process guidelines.
2. In the case of unsolicited bids, the SIR 30-day waiting period will begin on the date when the Commissioner receives the requested information from the bidder, without reference to the date when the target complies with the SIR.
3. The Competition Policy Review Panel recommended that "it would be beneficial to adjust [Canada's] merger review process into a two-stage regime that would more closely align our procedures with those in the US. This change would separate merger cases into two categories: those cases that are concluded (and effectively cleared) within 30 days of initial filing, and "second stage" cases that raise complex competition issues. So-called "second stage" cases would be subjected to an additional review period that would terminate 30 days following compliance with a "second request" for information." [Competition Policy Review Panel, Compete to Win, p. 56.]
4. In mid-September, the Bureau acknowledged that it had already issued 5 SIRs to merging parties since being authorized to do so on March 10.
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