1 Relevant Authorities and Legislation

1.1 Who is/are the relevant merger authority(ies)?

The Competition Bureau (the "Bureau") is an independent, federal law enforcement agency responsible for the administration and enforcement of the Competition Act (the "Act"). The Bureau is part of "Innovation, Science and Economic Development Canada" (i.e., the Canadian industry ministry) and is headed by the Commissioner of Competition (the "Commissioner").

The Competition Tribunal (the "Tribunal") is a specialised adjudicative body that operates independently of the Bureau and is responsible for hearing applications made under certain provisions of the Act, namely with respect to mergers, abuse of dominance and certain civil matters. The Tribunal has all such powers, rights and privileges as are vested in a superior court of record, including with respect to the attendance and examination of witnesses, the production and inspection of documents and the enforcement of its orders. The Tribunal may issue a range of formal remedial orders with respect to mergers, including divestiture orders.

Orders issued by the Tribunal may be appealed to the Federal Court of Appeal (the "FCA") on questions of law and of mixed fact and law. An appeal from a decision of the FCA may be made, with leave, to the Supreme Court of Canada.

The Tribunal does not have jurisdiction to hear criminal matters in Canada (most notably, alleged criminal cartel and bidrigging matters). Criminal matters are adjudicated by provincial superior courts.

1.2 What is the merger legislation?

Merger control in Canada is governed by the Act.

The Act's merger provisions consist of pre-merger notification provisions in Part IX and substantive merger review provisions in Part VIII. While only mergers that surpass certain thresholds are subject to notification under Part IX, any merger can be challenged by the Commissioner and may be subject to the substantive merger review provisions of Part VIII for up to one year following closing.

In addition to the Act, Parliament has enacted regulations that support the administration of the Act, including the Notifiable Transactions Regulations. The Bureau has also published several enforcement guidelines to assist in the interpretation of the Act (which do not have the force of law), including the Pre-Merger Notification Interpretation Guidelines, the Merger Enforcement Guidelines, the Merger Review Process Guidelines, and the Hostile Transactions Interpretation Guidelines.

1.3 Is there any other relevant legislation for foreign mergers?

The Investment Canada Act (the "ICA") applies to every acquisition of control of a Canadian business by a non-Canadian-controlled investor. The ICA requires either a pre- or post-closing "net benefit" review or a post-closing notification, depending on certain statutory criteria. Investments (including non-controlling investments) in Canadian businesses by non-Canadians may also be subject to review under the ICA if they give rise to national security concerns in Canada. Transactions involving "cultural businesses" (i.e., businesses engaged in the production, sale or distribution of books, magazines, periodicals, newspapers, audio, video and broadcasting) are subject to lower thresholds for review.

There is no fee associated with any ICA filing, irrespective of whether the filing is an application or a notification. For additional information about the Canadian foreign investment regime, please refer to the Canada chapter in the 2022 edition of ICLG – Foreign Direct Investment Regimes.

Mergers in certain industries may also be subject to specific public interest reviews and foreign ownership restrictions, including transactions involving transportation undertakings, financial institutions and telecommunications companies.

1.4 Is there any other relevant legislation for mergers in particular sectors?

Yes. While the Act applies across all industries with no sectorspecific rules, mergers in certain industries are subject to separate concurrent review processes, including transactions in the following sectors: transport (Canada Transportation Act); finance (Bank Act); and telecommunications and broadcasting (Broadcasting Act and Telecommunications Act).

Additionally, the ICA has specific rules for acquisitions of Canadian cultural businesses (i.e., businesses engaged in the production, sale or distribution of books, magazines, periodicals, newspapers, audio, video and broadcasting).

1.5 Is there any other relevant legislation for mergers which might not be in the national interest?

Mergers that raise potential national security concerns may be subject to review under the national security provisions of the ICA, as further discussed in question 1.3.

2 Transactions Caught by Merger Control Legislation

2.1 Which types of transaction are caught – in particular, what constitutes a "merger" and how is the concept of "control" defined?

The merger control legislation in Canada consists of two parts: (a) the pre-merger notification provisions in Part IX of the Act; and (b) the substantive merger review provisions in Part VIII of the Act. All "mergers" (as defined below) may be subject to substantive review and challenge for up to one year after completion. However, only transactions that exceed the applicable thresholds require mandatory notification to the Bureau (see question 2.4).

The substantive merger revision provisions apply to any "merger", which is defined broadly as the acquisition, in any manner, of control over, or of a significant interest in, the whole or part of the business of another person.

"Control" under the Act refers to ownership of more than 50% of the voting shares of a corporation. For non-corporate entities, control occurs where a person holds an interest that entitles them to receive more than 50% of the entity's profits or more than 50% of the entity's assets upon dissolution. Importantly, control does not flow through a general partner interest; as such, the manager of a partnership that carries on a private equity fund does not have legal control of the fund unless it also owns more than 50% of the fund's economic interest.

The Act does not define "significant interest". However, in the Merger Enforcement Guidelines, the Bureau notes that it believes a significant interest may be held where "the person acquiring or establishing the interest obtains the ability to materially influence the economic behaviour of the target business". This influence may impact decisions relating to pricing, purchasing, distribution, marketing, investment, financing and the licensing of intellectual property rights, amongst other things. Factors that may be relevant to the Bureau's analysis of whether a particular interest confers material influence include:

  • Voting rights attached to the purchaser's interest in the target.
  • Whether the target is widely or closely held.
  • Whether the purchaser will be the largest shareholder or have the ability to carry or block votes in a typical meeting.
  • The extent of shareholder approval rights for non-ordinary course transactions.
  • The extent of the purchaser's influence over the selection of management or members of board committees.
  • The access the purchaser has to confidential business information.
  • The practical extent to which the purchaser can otherwise impose pressure on the target's business-making processes.

A merger that is not subject to the pre-merger notification provisions in Part IX of the Act may close at any time. However, the Commissioner has substantive jurisdiction to review and challenge any transaction that may give rise to a substantial lessening or prevention of competition in a market in Canada any time prior to closing and for up to one year after closing.

As noted above, while any "merger" is subject to the substantive review provisions of the Act, mandatory notification applies only to a narrower set of transactions that exceed certain thresholds. See question 2.4.

2.2 Can the acquisition of a minority shareholding amount to a "merger"?

Yes. Acquisitions of a minority share may be caught under the pre-merger notification provisions of the Act where the relevant thresholds are met. Acquisitions of a minority shareholding are also typically caught under the substantive merger review provisions of the Act if the transaction satisfies the broad definition of a "merger". See question 2.1.

2.3 Are joint ventures subject to merger control?

Yes. Joint ventures are generally considered "mergers" under the Act and are therefore subject to substantive merger review provisions (see question 2.1). Joint ventures may also be subject to pre-merger notification where the relevant thresholds described in question 2.4 are met.

However, certain unincorporated joint ventures (defined as "combinations" under the Act) are exempt from notification (but not substantive review) where:

  • There is a written joint venture agreement that will govern a continuing relationship between the joint venture partners.
  • There is an obligation on one or more of the joint venture partners to contribute assets to the joint venture.
  • The transaction does not involve a change of control over either of the joint venture partners.
  • The joint venture's range of activities is restricted through a written agreement.
  • Written provision has been made for the orderly termination of the joint venture.

2.4 What are the jurisdictional thresholds for application of merger control?

Five types of transactions may be subject to mandatory premerger notification under Part IX the Act: (i) asset acquisitions; (ii) share acquisitions; (iii) amalgamations; (iv) the formation of unincorporated combinations to carry on business; and (v) acquisitions of an interest in unincorporated business combination

In order for a transaction to trigger a notification filing requirement, the target must qualify as an operating business, which is defined as a "business undertaking in Canada to which employees employed in connection with the undertaking ordinarily report for work". In addition, the following jurisdictional thresholds must each be exceeded:

  • Shareholding: Applies to acquisitions of shares of a corporation (and interests in unincorporated entities) only. This is exceeded when the purchaser, as a result of the transaction, comes to own more than 20% of the voting interests of the target (if it is publicly traded) or 35% of the voting interests (if it is not publicly traded). If this threshold is already exceeded prior to the acquisition, it can be exceeded again if the purchaser comes to own more than 50% of the voting interests.
  • Size-of-transaction: Exceeded where the target, together with the companies it controls, has assets in Canada whose book value exceeds C$93 million, or annual gross revenues in or from Canada generated from such assets exceeding C$93 million. The size of transaction threshold is adjusted annually for inflation. (Note that the size-of-transaction threshold applies slightly differently to amalgamations and Delaware mergers.)
  • Size-of-parties: Exceeded when the purchaser and the target, together with all entities under common ultimate control with them, have combined assets in Canada whose book value exceeds C$400 million, or annual gross revenues from sales in, from or into Canada exceeding C$400 million.

The Act defines ultimate control on the basis of ownership of more than 50% of the voting shares (of a corporation) and entitlement to profits or assets on dissolution (in the case of partnerships and other non-corporate entities). Importantly, control does not flow through a general partner interest (in a private equity fund, for example).

If a transaction is designed to avoid the pre-merger notification rules, the Act contains an anti-avoidance provision that deems such a transaction subject to mandatory pre-merger notification notwithstanding the avoidance.

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Originally Published by ICLG

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