Interim Commissioner of Competition John Pecman and Senior Deputy Commissioner of Mergers Kelley McKinnon recently attended a breakfast seminar at Stikeman Elliott, to speak to an overflow crowd of clients and to answer questions related to their visions for the future of the Competition Bureau.
Susan M. Hutton, Paul Beaudry and Solene Murphy -
On February 25, 2013, the Federal Court of Appeal (FCA) released its decision upholding the Competition Tribunal’s Order requiring that Tervita Corporation (formerly known as CCS Corporation) divest the Babkirk hazardous waste landfill site in northeastern British Columbia following its acquisition of Complete Environmental Inc. The decision provides guidelines for determining a reasonable period of time for likely market entry in a “prevent” case, as well as clearer guidance on what is “in” and what is “out” for a section 96 efficiencies defense. It also marks a rare challenge to a closed, and non-notifiable transaction.
Background
In February 2010, Complete received regulatory approval to open the Babkirk landfill. Construction had not yet commenced when Tervita acquired the site from Complete. At the time of the transaction, Tervita operated the only two operational secure landfills for hazardous waste in British Columbia. The Commissioner of Competition therefore alleged that the transaction substantially prevented competition in hazardous waste landfill in northeastern B.C.
Continue Reading...Parties considering retail mergers should take note of the approach that the Canadian Competition Bureau took in analyzing the proposed acquisition of The Brick Ltd. and its subsidiaries (The Brick) by Leon’s Furniture Limited (Leon’s). Stikeman Elliott LLP has experience acting as competition counsel in a number of retail mergers, including the recent acquisition by Canadian Tire of Forzani, in which the Bureau took a similar approach. Both retail merger reviews highlighted the key role of econometrics in the Bureau’s assessment of whether the merged entity will have the ability to increase prices.
On March 19, 2013, the Bureau released a position statement in respect of the merger of the two national retailers of furniture, mattresses, appliances and electronics. The Commissioner of Competition issued a “no action letter” to Leon’s and The Brick on March 11, 2013, meaning the merger will not be challenged. The Bureau’s review focused on the potential competitive effects in the retailing of furniture and mattresses. Leon’s and The Brick were viewed as particularly close competitors in respect of furniture and mattresses, with a high degree of differentiation from other competitors.
Continue Reading...Investment Canada – The Year of the State-Owned Enterprise
2012 proved to be a highly eventful year for foreign investment law in Canada. Although numerous foreign investments by SOEs in the Canadian energy sector had received foreign investment approvals in recent years1, the summer of 2012 saw the announcement of two multi-billion dollar energy transactions involving SOEs that collectively posed an unprecedented test for the Investment Canada Act and for Canadian policymakers. In June, Petronas (the Malaysian state-owned oil company) announced its $6 billion acquisition of Progress Energy. At the time, this was the largest-ever proposed acquisition of a Canadian company by a state-owned enterprise. But that record did not stand for long: just a month later, in July, CNOOC Limited (a majority Chinese state-owned oil company)announced its $15 billion acquisition of Nexen.
These proposed acquisitions became the subject of intense scrutiny in the national media throughout the summer and fall, and indeed attracted attention in the business press globally, particularly in Asia. With few exceptions, large-scale M&A activity in the Canadian oil patch ground to a halt in the fall of 2012 as market participants stood still and held their collective breath pending the outcome of the government reviews of these proposed foreign investments. Tension was only heightened in October when the Minister of Industry rejected the Petronas transaction on a preliminary basis, immediately recalling the rejection of BHP Billiton’s hostile bid for Potash Corporation of Saskatchewan less than two years earlier.
Continue Reading...The thresholds for review of acquisitions involving Canadian businesses will soon increase under both the Competition Act and the Investment Canada Act.
The Competition Bureau announced on January 8, 2013 that the “transaction size” threshold for review of acquisitions under the Competition Act will increase from the 2012 threshold of CDN$77 million to CDN$80 million. The 2013 threshold is anticipated to come into effect on or about January 12, 2013.
The transaction-size threshold is based on the book value of assets in Canada of the target (or in the case of assets, of the assets in Canada being acquired), or the gross revenues from sales “in or from” Canada generated by those assets, calculated in accordance with the Notifiable Transactions Regulations under the Competition Act. The Competition Act threshold is indexed annually to account for inflation. The ”size of parties” threshold remains constant at CDN$400 million.
Continue Reading...Susan M. Hutton and Robert Mysicka -
On January 3, 2013 the Competition Bureau issued a No-Action Letter in respect of the acquisition by Canadian film distributor Entertainment One Ltd. (eOne) of its competitor, Alliance Films Holdings Inc. (Alliance), indicating that the Commissioner does not, at this time, intend to challenge the proposed acquisition pursuant to section 92 of the Competition Act.
In its statement concerning the proposed acquisition of Alliance by eOne, the Bureau indicated that the parties are significant competitors for film distribution in Canada but that the distribution of Canadian films constitutes a distinct product market due to various government cultural initiatives and funding programs. In particular, in order to qualify for government funding available for Canadian productions (a significant source of total funding), the producer must use a Canadian distributor, and government funding requirements limit the ability of the distributor to lower minimum guarantees or increase distribution fees. Notwithstanding the substantial share of the combined companies in that market, therefore, the Bureau concluded that the government policies in place would render a substantial lessening or prevention of competition unlikely and that in any event, there was effective remaining competition for the distribution of non-Canadian films.
Continue Reading...On December 14, 2012, the Competition Bureau announced that it had withdrawn criminal charges related to the breach of a consent agreement in a waste-collection company merger due to the accidental leak of privileged information during the course of the Bureau’s investigation.
The Bureau said in its statement that on September 19, 2012, it “became aware of an unfortunate procedural error, where certain information subject to solicitor-client privilege had been inadvertently shared with investigators.” As previously covered on this blog, on September 11, 2012, the Bureau laid criminal charges against Progressive Waste Solutions Ltd. and its subsidiary BFI Canada Inc. (known together as Progressive). The Bureau alleged that Progressive had violated the terms of a consent agreement it had entered into with the Bureau in 2010. The Bureau concluded at the time that the merger would result in a substantial lessening or prevention of competition in the waste collection market in several Canadian cities.
Continue Reading...On December 17, the Competition Bureau released a position statement summarizing the approach it had taken in analyzing two proposed vertical mergers (i.e., mergers between firms at different levels of a supply chain) in the pork industry. Both proposed mergers involve the acquisition of a large Western Canadian hog producer by a company that sells finished food products (pork cuts) to consumers: Olymel L.P. plans to acquire Big Sky Farms Inc. and Maple Leaf Foods Inc. plans to acquire Puratone Corporation. The Bureau decided not to challenge either merger.
The key concerns considered by the Bureau, and its conclusions about each, were:
Continue Reading...On September 12, my colleagues in the Competition & Foreign Investment Group hosted a breakfast seminar at which many of the recent developments in Canadian competition and foreign investment law were discussed and analyzed. As many of you know, there have been a number of important legal changes in the competition field in recent years. For example, a per se criminal offence for cartel conduct and a new civil provision for reviewing certain types of competitor collaborations have been introduced, competition law-related class action lawsuits have proliferated, a US-style two-stage merger review process has been created, penalties and enforcement activities associated with misleading advertising have been enhanced, and amendments to the Investment Canada Act have come into effect.
During the seminar, Paul Collins, having just returned to Stikeman Elliott following a two-year term as Senior Deputy Commissioner – Mergers Branch, spoke of recent developments at the Competition Bureau with a focus on recent enforcement activities and priorities. Litigator Katherine Kay summarized the current state of play of competition law class actions in Canada, while Shawn Neylan emphasized the importance of implementing an effective competition law compliance program in light of the Bureau’s recent enforcement activities. Meanwhile, Susan Hutton provided an update on and explained the significance of recent amendments and proposed amendments to the Investment Canada Act in relation to enforcement, review thresholds and new filing requirements.
On September 26, 2012, John Pecman was appointed as the new Interim Commissioner of Competition, to lead the Competition Bureau until a new Commissioner of Competition is appointed. In announcing Mr. Pecman’s appointment the Minister of Industry, the Honourable Christian Paradis said “"With nearly 30 years of experience at the Bureau, Mr. Pecman has a keen understanding of competition law and marketplace conduct."
Mr. Pecman joined the Competition Bureau in 1984 and has worked extensively in the enforcement branches of the Competition Bureau, the agency that he now heads as Interim Commissioner. He has been involved in numerous leading cases as the senior officer, some of which were resolved on consent or by guilty plea, others of which were contested before the Competition Tribunal.
Continue Reading...On September 11, the Competition Bureau announced that it had laid criminal charges against Progressive Waste Solutions Ltd. and its subsidiary, BFI Canada Inc., alleging that Progressive had violated the terms of a consent agreement it had entered into in 2010. The consent agreement was reached in respect of a merger between IESC-BFC Ltd. and Waste Services Inc. (now known together as Progressive), two commercial waste collection companies. The Bureau concluded at the time that the merger would result in a substantial lessening or prevention of competition in the waste collection market in several Canadian cities, and entered into a consent agreement with the merging parties which required them to divest certain assets in the affected markets. The consent agreement also provided that the parties could not attempt to reacquire the customers of the companies who purchased the divested assets for one year following the divestitures. In October and December of 2010, the Bureau approved divestiture buyers. Now, the Bureau alleges that Progressive violated the terms of the agreement by soliciting and reacquiring a customer whose contract had been divested, and then providing a false declaration of compliance and failing promptly to notify the Bureau of the breach.
Continue Reading...Susan M. Hutton & Edwin Mok -
The Canadian landfill company that lost a merger challenge at the Competition Tribunal in Canada’s first pure prevention of competition case has appealed to the Federal Court of Appeal.
On January 4, 2011, the Commissioner of Competition applied to the Tribunal for an order to dissolve a merger between CCS Corporation and Complete Environmental Inc. In the alternative, the Commissioner sought an order for CCS to divest itself of Complete or Complete’s wholly–owned subsidiary, Babkirk Land Services. Babkirk had obtained approval to operate a secure landfill site in northeastern British Columbia. As such, Babkirk had been poised to compete directly with CCS. The Commissioner alleged that the merger between CCS and Complete would result in a substantial prevention of competition in the market for hazardous waste disposal in northeastern British Columbia.
On May 29, 2012, the Tribunal ruled in favour of the Commissioner, finding that CCS’s acquisition of Complete would likely prevent competition substantially in the market for the supply of landfill services for solid hazardous oil and gas waste. The Tribunal ordered that CCS divest its shares or assets of Babkirk by December 28, 2012. On July 17, 2012, the Tribunal further issued a divestiture procedure order.
Continue Reading...Today, the Commissioner of Competition issued a “no-action letter” to Maple Group in respect of its proposed acquisition of TMX Group, Alpha Group and Canadian Depository Services.
The Competition Bureau’s review of the Maple / TMX transaction was extensive. Maple Group (whose investors are Alberta Investment Management Corporation, Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, CIBC World Markets Inc., Desjardins Financial Group, Dundee Capital Markets Inc., Fonds de solidarité des travailleurs du Québec (F.T.Q.), National Bank Financial & Co. Inc., Ontario Teachers' Pension Plan, Scotia Capital Inc., TD Securities Inc. and The Manufacturers Life Insurance Company) announced on May 15, 2011, in the midst of the failed bid by the TSX to merge with the LSE, that the Group had submitted a proposal to acquire the TMX Group. Maple filed an application for an advance ruling certificate on June 7, 2011. The transaction was therefore under active Competition Bureau review for a period of some 13 months.
Continue Reading...Paul Beaudry and Megan MacDonald -
On June 28, 2012, Canada’s Commissioner of Competition, Melanie Aitken, announced her decision to leave her post, effective September 21, 2012.
Commissioner Aitken was appointed to a five-year term in August 2009, having replaced the previous Commissioner, Sheridan Scott, as Interim Commissioner just prior to the enactment of significant amendments to the Competition Act in March, 2009.
Ms. Aitken held the role of Assistant Deputy Commissioner in the Mergers Branch from 2005 to 2007, and was appointed head of the Mergers Branch at the end of that term. Prior to joining the Bureau, Ms. Aitken had been a commercial litigation partner with two Canadian law firms, with a secondment to the Federal Department of Justice as Senior Counsel from 2001 to 2003.
Continue Reading...Stikeman Elliott recently welcomed back Paul Collins, as he returned to his position as Head of the Competition and Foreign Investment Group at the firm, following a two-year term at Canada's Competition Bureau. Paul's time at the Bureau as the Senior Deputy Commissioner in charge of the Mergers Branch corresponded with significant enhancements to the Bureau's merger enforcement powers, and the successful prosecution of a rare contested merger case.
I recently caught up with Paul to discuss his experiences at the Bureau and to get his views on how he sees the Bureau exercising its merger enforcement authority going forward.
On May 29, 2012, the Competition Tribunal ruled in favour of the Commissioner of Competition, and ordered CCS Corporation to divest a hazardous waste landfill site, the acquisition of which the Commissioner had alleged would result in a substantial prevention of competition in the market for hazardous waste disposal in northeastern British Columbia. This was the first contested challenge to a merger by the Commissioner since 2005.
Complete Environmental had received regulatory approval to open the Babkirk landfill in February 2010, and had not yet started construction when CCS Corporation acquired the site. CCS already operates the only two operational secure landfills for hazardous waste in British Columbia. The Commissioner alleged that, through the acquisition of the Babkirk landfill, CCS had prevented the entry of a potential competitor, thereby substantially preventing competition.
Continue Reading...Susan M. Hutton and Robert Mysicka
The Competition Bureau has released an updated Merger Review Performance Report (Report) tracking the activities of its Mergers Branch since the last report published in May, 2010 and discussed in our previous post.
Since 2010, the Bureau has published a series of revised guidelines as part of its ongoing efforts to realign its merger review procedures following the 2009 amendments to the Competition Act and the Notifiable Transactions Regulations. The updated guidelines include:
Continue Reading...On April 11, 2012, the Competition Bureau released a statement summarizing its review of the acquisition of retirement residences by Chartwell Seniors Housing REIT (Chartwell) and Health Care REIT Inc. (HC) of the Maestro Retirement Residences Portfolio (Maestro). The Bureau issued a No Action Letter in respect of the acquisition.
Both Chartwell and Maestro operate retirement residences in Canada, while Ohio-based HC operates retirement residences in the United States. The Bureau’s review focused on the different types of retirement residences and the local nature of competition among retirement residences. The relevant product markets were defined as Independent Supportive Living programs (ISL) and Assisted Living programs (AL), due to differences in the services offered and demand considerations for each.
Continue Reading...Ashley Weber and D. Jeffrey Brown -
On April 16, 2012, Canada’s Competition Bureau issued a statement outlining the analysis it had undertaken of Cardinal Health’s then-proposed acquisition of Futuremed to conclude that, despite some concerns expressed by certain customers, the transaction was unlikely to result in a substantial prevention or lessening of competition in any relevant Canadian market. Stikeman Elliott acted on behalf of Cardinal Health.
Cardinal Health and Futuremed were both distributors of a broad range of medical supplies and surgical equipment to various healthcare facilities in Canada, supplying products from hundreds of global manufacturers. The Bureau noted that prices in the healthcare products distribution industry are typically set through a tendering process between manufacturers and customers, whereby manufacturers sell direct to the individual healthcare facility or, alternatively, to a buying group acting for several healthcare facilities. As such, authorized distributors of manufacturers, such as Cardinal Health and Futuremed, do not compete on price, but rather compete through the use of distribution fee rebates, quality of service and technical expertise offered to customers.
Continue Reading...Susan Hutton & Robert Mysicka -
On February 6, 2012, the Competition Bureau announced that as part of its efforts to increase transparency in the merger review process it will begin publishing monthly reports of concluded mergers. The first report, for the month of February, will be published in March and will appear as a table with information on the parties to the transaction, the industry, and the result (i.e. whether the merger was concluded following the issuance of an Advanced Ruling Certificate (ARC) under section 102 of the Competition Act, the issuance of a “No-action Letter”, the registration of a consent agreement, or a judicial decision).
The Bureau’s decision to publish a list of completed merger reviews comes after its previously announced decision to discontinue issuing detailed backgrounders on the facts of particular cases. Such backgrounders had been sporadic, and subject to permission by the parties to reveal non-public information, but had been helpful in shedding light on the Bureau’s enforcement approach to mergers – no such details of individual cases will be provided in the merger register.
Continue Reading...The thresholds for review of acquisitions involving Canadian businesses will soon increase under both the Competition Act and the Investment Canada Act.
The Competition Bureau (Canada) announced on February 7, 2012 that, effective February 11, the pre-merger notification transaction-size threshold for 2012 will increase to Cdn$77 million from the 2011 threshold of Cdn$73 million. The threshold is based on the book value of assets in Canada of the target (or in the case of assets, of the assets in Canada being acquired), or the gross revenues from sales “in or from” Canada generated by those assets, calculated in accordance with the Notifiable Transactions Regulations under the Competition Act. After February 11, 2012, the Competition Bureau must generally be given advance notice of proposed transactions when the acquired assets in Canada or revenues generated in or from Canada exceed $77 million, and when the combined Canadian assets or revenues “in, from or into” Canada of the parties together with their respective affiliates exceed $400 million.
Continue Reading...Susan M. Hutton and Michael Laskey -
On January 11, 2012, Canada’s Competition Bureau published revised Merger Review Process Guidelines, updating the Bureau’s approach to the administration of the merger review process under the Competition Act in light of experience gained since the implementation of the two-stage U.S.-style notification process in 2009.
In particular, the Guidelines discuss: (i) the statutory waiting periods which apply to mergers that exceed certain thresholds set out in the Act; (ii) the two-stage notification process including the use of Supplementary Information Requests (SIRs), similar to the “second request” process in the United States; (iii) the use of timing agreements as an alternative means of obtaining information about a transaction and (iv) provide the Bureau’s view of how parties should conduct their searches for documents and information when responding to a SIR, in the form of sample search instructions.
Continue Reading...Susan Hutton & Lindsay Gwyer -
On November 3, 2011, the Competition Tribunal issued a decision refusing to grant summary disposition to the vendor respondents in Commissioner of Competition v. CCS Corporation, thus confirming dissolution as a possible remedy in the case. The proceedings centre on the Commissioner’s application challenging CCS Corporation’s completed acquisition of Complete Environmental Inc., which owns the Babkirk Secure Landfill located in northeastern British Columbia, on the basis that the transaction is likely to substantially prevent competition for the disposal of hazardous waste in northeastern British Columbia (for more on the case, see our earlier post).
Because the proceedings deal with a completed transaction, the vendor respondents maintain that they are only implicated to the extent that the Tribunal would order dissolution as a remedy. Consequently, the vendor respondents moved to have the Commissioner’s application dismissed against them on the ground that there was no genuine basis for the Tribunal to order dissolution. They argued that dissolution was an overly broad and punitive measure, and that divesture would be an effective and more appropriate remedy (assuming that the Commissioner is able to prove that the acquisition would substantially prevent competition). On the other hand, the Commissioner maintained that dissolution might be a necessary remedy, and argued that the application should be allowed to proceed to a hearing in order to determine several factual issues that would impact on the viability of either divesture or dissolution as an appropriate remedy.
Continue Reading...On October 6, 2011, the Competition Bureau announced the publication of the final version of its revised Merger Enforcement Guidelines (MEGs), only thirteen months after announcing its intention to review the guidelines in September 2010. The revised MEGs replace both the 2004 version of the guidelines and the Bureau’s 2009 Efficiencies in Merger Review bulletin.
The revisions aim to better describe the Bureau’s analytical approach to merger review by addressing discrete areas where the 2004 MEGs no longer fully reflected Bureau practice or current economic and legal thinking. It is generally understood that the 2010 revisions to the U.S. Horizontal Merger Guidelines (U.S. Guidelines) also constituted an important factor driving the need for review. Whereas the U.S. Guidelines are limited to horizontal mergers, however, the revised MEGs also address vertical merger analysis and go further than the U.S. Guidelines with respect to horizontal merger analysis by incorporating more recent thinking on Canada’s own unique efficiencies defence.
Continue Reading...On October 5, 2011, the Competition Bureau released a “Position Statement” summarizing its approach in reviewing Canadian Tire’s recent acquisition of the Forzani Group. The transaction, which took the form of a takeover bid, was announced on May 9, 2011, and the Bureau cleared the transaction on August 3, 2011. The transaction provided the Bureau with the relatively rare opportunity to review a retail merger between retailers carrying on business using different business models: Forzani is a national sporting goods retailer (including sports apparel and equipment), and Canadian Tire is a mass merchandiser selling products, through a network of independent dealers, across a range of categories, including sporting goods as well as automotive parts, tools, house wares and electronics.
In reviewing the transaction, the Position Statement notes that the Bureau analysed its potential competitive effects in a number of possible product markets (retail sale of sporting equipment; retail sale of certain sporting equipment categories, such as hockey equipment; and the retail sale of specific sporting equipment products, such as hockey skates), but ultimately concluded that it was not necessary to conclusively define the relevant product market(s) in light of econometric evidence showing that neither party responded competitively to the presence of the other in local markets, and to evidence that this was unlikely to change post-merger. To our knowledge, this is the first time the Bureau has expressly relied on such a competitive effects analysis in its assessment of a merger, although the potential for such an approach was signalled in its draft revisions to the Merger Enforcement Guidelines, published earlier in 2011.
Stikeman Elliott LLP acted as competition counsel to Canadian Tire, with a team consisting of Lawson Hunter, Jeffrey Brown, Paul Beaudry, Megan MacDonald and Alexandra Stockwell.
Susan M. Hutton and Robert Mysicka -
On August 11, 2011 the Competition Bureau (Bureau) released a summary of an internal study on the efficacy of remedies obtained under the merger provisions of the Competition Act. The study examined the efficacy of the Bureau’s policies and procedures on merger remedies for the years 1995-2005. In particular, the survey focused on 23 merger cases in which different remedial measures were implemented over the ten-year period. The Bureau interviewed different stakeholders in the merger review process, including merged entities, customers and purchasers of divested assets, as well as third parties affected by the remedy. The study utilized 135 interviews, approximately 50% of which were responses from customers.
The Competition Act allows for the Commissioner of Competition to make an application to the Competition Tribunal preventing a merging entity, alone or in combination with others, from having the ability to exercise market power as a result of its merger. The Commissioner can challenge the merger under section 92 of the Act, or seek to resolve the competition concerns by negotiating remedies with the merging parties. In practise, very few merger cases in Canada are litigated. Accordingly all of the remedies examined had been agreed with the parties. The Bureau’s 2006 Bulletin on Merger Remedies specifies four types of remedial measures used by the Bureau and the Tribunal to address mergers that have, or are likely to have, detrimental effects on competition. The study, which will be used to validate and refine certain aspects of the Bureau’s practice, describes key observations on the four principal remedies currently used by the Bureau, including: structural remedies, quasi-structural remedies, combination remedies, and stand-alone behavioural remedies. For purposes of the public summary of the report, however (details of the complete study must remain confidential pursuant to the confidentiality provisions of section 29 of the Competition Act), results have been summarized for structural, and for all other categories.
Continue Reading...Susan M. Hutton and Robert Mysicka -
Canada’s Competition Bureau has released three new guidelines relating to its merger review process under Part IX of the Competition Act. The first two guidelines discuss the Bureau’s approach to the disclosure of confidential information and the running of waiting periods in the context of unsolicited (hostile) bids. The third guideline discusses the completeness of notifications, in particular with respect to the meaning of “officers and directors” for non-corporate entities, and when information can be excluded from a notification on the basis of confidentiality.
Continue Reading...Susan M. Hutton and Marisa Berswick
On June 27, 2011, the Competition Bureau issued draft revisions to Canada’s Merger Enforcement Guidelines (MEGs). The MEGs, last revised in 2004, set forth general direction on the Bureau’s analytical approach to merger review under Part VIII of the Competition Act. On February 24, 2011, the Commissioner announced that the Bureau would undertake “moderate revisions” to the MEGs. An important factor driving the current revisions is generally understood to be the 2010 revisions to the U.S. Horizontal Merger Guidelines (U.S. Guidelines), although the Canadian revisions did not simply adopt those made in the U.S. In addition, the Canadian MEGs address both horizontal and vertical merger analysis and reflect more recent thinking on our own unique efficiencies defence. The Bureau is seeking public feedback on its draft revised MEGs by August 31, 2011, with a view to publishing them in final form in the fall of 2011.
Substantively, the draft revised MEGs do not appear to indicate dramatic shifts in Bureau merger enforcement policy or practice. They do adopt a more nuanced approach to market definition, however, and provide more detail regarding the Bureau’s approach to monopsony (buyer) power, minority interests and interlocking directorates, the use of various economic tools in the analysis of competition between firms with differentiated products (“upward pricing pressure” as such is not specifically mentioned, but is very much there in spirit), a change in the approach to assessing whether entry is likely to be “timely”, a more nuanced treatment of coordinated effects, and an expanded analysis of anti-competitive effects in non-horizontal mergers. The revisions are intended to address areas where the 2004 MEGs no longer fully reflected Bureau practice and current economic and legal thinking.
Continue Reading...Shawn C.D. Neylan and Michael Kilby -
In March 2009, significant amendments to Canada’s Competition Act and Investment Canada Act were passed, with important implications for the regulatory review of mergers and acquisitions.
Merger Control – Competition Act
Following the amendments of March 2009, Canada now has a “two-stage” merger review process. The merits and demerits of this new regime were never thoroughly debated among competition law practitioners or in Parliament, because the amendments were included in a budget implementation bill drafted in response to the global economic crisis of 2008. The bill moved through the legislative process in a matter of weeks, with the clear focus of parliamentary debate being on economic stimulus measures, rather than amendments to the Competition Act and other statutes. In any event, the new merger review process shares many similarities with the US process under the Hart-Scott-Rodino Act1. More particularly, the submission of the required notification filings by the purchaser and the target company triggers a 30 calendar day waiting period during which the transaction may not proceed, unless the Commissioner of Competition (the Commissioner) issues a positive clearance for the transaction and/or terminates the waiting period. If the 30 calendar day waiting period expires without the issuance by the Commissioner of a supplementary information request (a SIR), then there is no legal impediment to the parties closing the transaction. However, if the Commissioner issues a SIR within the 30 calendar day waiting period, the transaction may not close until 30 days after the parties have complied with the SIR, unless the Commissioner issues a positive clearance for the transaction and/or terminates the waiting period.
Continue Reading...On February 24, 2011, the Commissioner of Competition announced that the Competition Bureau will undertake “moderate revisions” to the Canadian Merger Enforcement Guidelines (MEGs). This announcement follows a series of roundtable consultations with competition law practitioners across Canada, consultations with foreign agencies and an internal Bureau review. A wide variety of opinions were expressed during these roundtable consultations, including opinions as to whether revisions were necessary, particularly given that the MEGs were last revised in 2004 following a thorough review and consultation process. In this regard, an important factor driving the revisions is generally believed to be the 2010 revisions to the U.S. Horizontal Merger Guidelines (although these had last been revised in 1992).
Continue Reading...The Competition Bureau announced today that the threshold for the size of the assets or revenues of the "target" of acquisitions involving businesses in Canada will increase to $73 million. The change will take place following publication in the Canada Gazette, which is expected to take place on February 12, 2011. Generally speaking, transactions involving parties whose combined assets in Canada or revenues in, from or into Canada (including those of affiliates) exceeds C$400 million must be notified in advance of closing to the Competition Bureau, if the business in Canada has assets in Canada or revenues generated therefrom exceeding the "size of target" threshold. This threshold may be modified annually under the indexing provisions of the Competition Act.
Susan M. Hutton and Sharon Seung
On January 26, 2011, Canada’s Competition Bureau announced that it has applied to the Competition Tribunal for an order to dissolve CCS Corporation’s acquisition of Complete Environmental Inc., which owns the Babkirk Secure Landfill located in northeastern British Columbia. Interestingly, the theory of harm in this case is founded on a likely “prevention” rather than a “lessening” of competition – typically harder to prove.
CCS’ acquisition of the Babkirk Secure Landfill is said to be likely to substantially prevent competition for the disposal of hazardous waste produced largely at oil and gas facilities in northeastern British Columbia. According to the Commissioner of Competition: “[b]y purchasing, rather than face competing with the Babkirk Secure Landfill, CCS will prevent the entry of competition into the market for secure hazardous waste disposal in Northeastern British Columbia.” Complete Environmental had received regulatory approval to open the landfill in February 2010, but had not yet started construction. According to the Bureau, had the Babkirk Secure Landfill opened, it would have become a competitor to CCS, which currently operates the only two operational secure landfills for hazardous waste in British Columbia.
Continue Reading...An article in the Globe and Mail considers whether enhancements to the Competition Bureau's enforcement tools have led to more aggressive scrutiny of corporate mergers in Canada. Some in the legal community see an increase in the Competition Bureau's demands for remedies emerging from the Bureau's ability, since 2009, to request additional documents and information from merging parties without having to obtain court approval, and to extend waiting periods while such requests are complied with. Others, however, disagree that the Bureau's substantive approach to merger review has been affected by the enhanced investigative powers. According to the head of Stikeman Elliott's Competition Law practice group, Lawson Hunter, who was quoted in the article,
I don’t see any evidence that the bureau is getting more aggressive in how they are analyzing mergers because of these changes at all.
Commissioner of Competition Melanie Aitken, has also suggested that the Bureau is taking a cautious approach to its expanded powers. In a September 2010 speech to the CBA Fall Competition Law Conference, Ms. Aitken stated:
The Guidelines [the Bureau's Merger Review Process Guidelines, which explain the Bureau's approach to administering Canada's merger review process] also emphasized our commitment to use our new information gathering powers judiciously, only in respect of those transactions that raise significant competition issues and for which the Bureau requires additional information to conduct a sufficiently thorough review.
Since the introduction of the amendments in 2009, the Bureau has issued only ten SIRs [Supplementary Information Requests, also called "second requests" in the United States]. To put this into perspective, the Bureau has received more than 300 merger filings over this same period, approximately 90% of which were cleared within the initial 30-day review period.
As the global financial storm subsides, our colleagues Richard Clark and Curtis Cusinato take a look at the issues facing Canadian M&A in 2011 in an article recently posted on CanadianSecuritiesLaw.com. Specifically, Richard and Curtis have identified 11 trends for the upcoming year, including the gaining strength of poison pills, the growth of a domestic high-yield debt market and recent income tax developments that have a generally positive effect for M&A.
As of November 1, 2010, new internal processing deadlines apply to Canadian merger review by the Competition Bureau, pursuant to the release of the Fees and Service Standards Handbook for Mergers and Merger-Related Matters. The Handbook’s release followed the release of a draft handbook in May, 2010 and extensive public consultations. A key purpose of the new Handbook is to better align the Bureau’s own (non-binding) internal timelines for processing merger files (so-called “service standards”) with the statutory waiting periods.
At the same time, in a related Procedures Guide for Notifiable Transactions and Advance Ruling Certificates, the Bureau has clarified that electronic merger notifications will now only be accepted between 9 am and 5 pm Eastern Time on business days for same-day receipt (the Bureau had previously accepted paper filings until 5:00 pm, but electronic filings until midnight for same-day receipt), and waiting periods that end on a weekend or other statutory holiday in the province of Quebec will be extended to expire on the next business day.
Continue Reading...The Competition Bureau announced on August 13 that it will not challenge the proposed acquisition of the over-the-air and specialty television businesses of Canwest Global Communications Corp. (Canwest) by Shaw Communications Inc. (Shaw). According to the Bureau, the transaction would not likely give rise to a substantial lessening or prevention of competition, being the statutory test for a merger challenge under the Competition Act. The Bureau based its conclusion on a number of factors, including effective remaining competition, the effect of the regulatory environment and a lack of relevant competitive concerns on the part of market participants. Concerns from market participants are typically a very important factor in the Bureau's assessment of the competitive impact of a transaction. In terms of the transaction's potential impact on advertising, the Bureau found that there were numerous alternative options available to advertisers. The transaction remains subject to CRTC approval.
On August 9, 2010, the Competition Bureau announced that it had entered into a consent agreement with Novartis AG to resolve competition concerns stemming from Novartis’ proposed acquisition of control of Alcon, Inc.
The Bureau had concluded that, in the absence of a remedy, the acquisition would likely result in a substantial lessening of competition in Canada in the supply of certain ophthalmic products, more particularly: injectable miotics (which are used to contract the pupil in order to perform surgery); ocular conjunctivitis drugs (which are used to treat seasonal allergies); and multi-purpose contact lens cleaners/disinfectants solutions. The consent agreement requires the divestiture of assets and associated licenses relating to the sale in Canada of the following Novartis products: Miochol-E (an injectable miotic); Zaditor (an anti-allergy agent); and Solocare Aqua (a multi-purpose contact lens cleaner and disinfecting solution, including the MicroBlock anti-bacterial lens case).
Continue Reading...On July 30, 2010, the Competition Bureau (Bureau) announced that it had reached a consent agreement with Teva Pharmaceuticals Industries Ltd. (Teva) and the Merckle Group, carrying on business as ratiopharm, requiring the divestiture of assets and associated licenses in relation to certain forms of acetaminophen oxycodone tablets and morphine sulfate sustained release tablets. The agreement follows the Bureau’s determination that Teva's acquisition of ratiopharm would result in a substantial lessening of competition in Canada with respect to such products. The consent agreement provides that Teva must divest either Teva or ratiopharm's versions of these products in Canada within an initial sale period, failing which the products are to be divested pursuant to a trustee sale process. Teva and ratiopharm are both active within the Canadian generic drug manufacturing industry. The parties had entered into an acquisition agreement on March 18, 2010, valuing the global ratiopharm business at €3.625 billion.
This transaction represents the fourth occasion to date in 2010 for which the Bureau has required a merger remedy (Ticketmaster/Live Nation, BFI Canada/Waste Services, Nufarm/AH Marks, and Teva/ratiopharm).
Jeffrey Brown and Michael Kilby of Stikeman Elliott LLP were Canadian competition counsel to ratiopharm.
Shawn Neylan and Michael Kilby
On July 28, 2010, the Competition Bureau (Bureau) announced that it had reached an agreement with Nufarm Limited (Nufarm) in relation to its earlier acquisition of AH Marks Holding Limited (AH Marks) in March 2008, stating that commitments made to the Bureau by Nufarm and the entering into of a consent decree in the United States between Nufarm and the Federal Trade Commission (FTC) were adequate to resolve Canadian competition concerns.
The US consent decree pertains to three herbicides used on farms and lawns. Nufarm is required to sell AH Marks’ rights and assets associated with the “MCPA” herbicide to a new competitor, Albaugh Inc., and to sell AH Marks’ rights and assets associated with “MCPP-P” herbicide to a new competitor, PBI Gordon Co. Further, Nufarm is required to modify current agreements with two other companies (Dow Chemical Company and Aceto Corporation) to allow them to fully compete in respect of the MCPA herbicide, and a third herbicide, “2,4-DB.” In the United States, the FTC concluded that Nufarm’s acquisition of AH Marks resulted in Nufarm having a monopoly in the US markets for the MCPA and MCPP-P herbicides, and left only two competitors in the market for the third herbicide, 2,4-DB. In Canada, Nufarm will divest its MCPA Task Force seat and certain Canadian MCPA Technical Registrations and Canadian Formulated Product Registrations to Albaugh.
On June 29, 2010, the Competition Bureau announced that it had negotiated a merger remedy in connection with the IESI-BFC Ltd. (BFI) and Waste Services Inc. (WSI) transaction. The remedy is set out in a Consent Agreement filed with the Competition Tribunal. The divestiture will include commercial front end (as opposed to roll off bin) waste collection assets, including customer contracts, vehicles, bins and other equipment in Calgary, Edmonton, Hamilton, Ottawa and Simcoe County, Ontario as well as a waste transfer station located in Hamilton, Ontario.
The Consent Agreement includes specific provisions regarding national accounts, unassignable contracts and the prospect of different buyers in the various markets.
Building on extensive institutional leadership and expertise, three important positions have recently been filled in the Mergers Branch of the Competition Bureau. Leading the Mergers Branch, Paul Collins has recently been appointed Senior Deputy Commissioner of Competition, Mergers. Mr. Collins has extensive experience from his many years as a highly regarded competition law advisor in the competition bar in Toronto. Mr. Collins is second-in-command at the Bureau, reporting directly to the Commissioner of Competition, Melanie Aitken.
The Mergers Branch includes three divisions and the Merger Notification Unit, the heads of which report to Mr. Collins. Ann Wallwork has been Assistant Deputy Commissioner of Competition for Division A for a number of years, and also assumed the role of Acting Senior Deputy Commissioner of Mergers between December 2009 and May 2010.
On June 2, 2010, the Competition Bureau released a policy statement regarding its approach to the disclosure of information to companies involved in hostile transactions. Bidders and targets in hostile or unsolicited transactions can have competing interests, posing challenges for the Bureau when it comes to complying with its confidentiality obligations under the Competition Act. Although the Bureau has an explicit obligation to immediately notify a target of the date upon which the Bureau receives a pre-merger notification filing from the bidder, the Act does not otherwise address the issue of information sharing in the context of hostile or unsolicited transactions.
The Bureau's new policy statement sets out that when the Bureau provides to one party information regarding such matters as the anticipated duration of the Bureau review and its views on whether the transaction would substantially lessen or prevent competition, it will also “strive to disclose” that information “equitably” with the other party, subject to the restrictions in the Competition Act. There is therefore a stance favouring the sharing of information but which also recognizes that there will be limitations required by law in some cases.
On May 31, 2010, the Competition Bureau announced that Clean Harbours, Inc., a US-based company that provides environmental waste services in Canada, had implemented a merger remedy as required by the terms of its July 2009 agreement with the Commissioner of Competition. The agreement required the divestiture of the Pembina Area Landfill in Alberta which Clean Harbours had acquired as a result of its 2009 acquisition of Eveready Inc., an Alberta-based company that also provided environmental waste disposal services. In July 2009, the Bureau stated that it had concluded that Clean Harbours' acquisition of Eveready would likely prevent or lessen competition substantially in respect of Class I solid hazardous waste disposal in Alberta. In particular, the Bureau was concerned that the transaction “could result in higher prices for solid hazardous waste disposal” since Clean Harbours would have owned the only two Class I hazardous waste landfills in the province.
The landfill was sold to Secure Energy Services Inc. Although the Initial Sale Period (during which Clean Harbours would have conduct of sale) set out in the agreement is still confidential, it is possible that it was considerably shorter than the 10-month period it took to complete the divestiture. If so, the Commissioner may have agreed to one or more extensions of the Initial Sale Period so as to allow for the orderly sale of the business by Clean Harbours, rather than resorting to a forced sale by a divestiture trustee as provided for in the agreement if a sale was not completed by Clean Harbours within the Initial Sale Period.
On May 31, 2010, the Competition Bureau released for consultation a draft revised Fee and Service Standards Handbook for Merger-Related Matters. The Bureau proposes changes to timelines as well as some adjustments to the assessment of transaction complexity. Service standards are wholly distinct from statutory waiting period under the merger filing provisions of the Competition Act. They set out, depending on substantive complexity, non-binding maximum time periods within which the Bureau will endeavour to complete a merger review.
Merger reviews are designated as being either “non-complex”, “complex”, or “very complex”. The draft Handbook proposes:
The Bureau will accept comments on the draft until July 31, 2010.
On May 31, 2010, the Competition Bureau released its Merger Review Performance Report which provides an update on the performance of the Bureau's Mergers Branch.
For the Bureau’s year of April 1, 2009 - March 31, 2010, the Bureau commenced a total of 216 merger reviews. Reviews were commenced after receiving merger notifications under Part IX of the Competition Act or requests for advance ruling certificates under s. 102 of the Competition Act or for other reasons. Merger review numbers were slightly less than previous years. The Bureau commenced 239 merger reviews in the 2008 – 2009 year and 337 merger reviews in the 2007 – 2008 year (the highest number since at least the 2003 – 2004 year).
The Bureau also reported on the breakdown of complexity designations. In the 2009 – 2010 year the Bureau classified 173 transactions (84%) as non-complex (subject to a non-binding maximum 2 week review period), 27 transactions (13%) as complex (subject to a non-binding maximum 10 week review period), and 6 transactions (3%) as very complex (subject to a non-binding maximum 5 month review period). These results were generally in line with previous years. From 2003 to 2010, approximately 88% of merger reviews were classified as non-complex, 10% as complex and 2% as very complex.
The Bureau reported that in the 2008 – 2009 year it completed its merger reviews within the designated review period 93% of the time for non-complex transactions, 89% of the time for complex transactions and 83% of the time for very complex transactions. Thus, while exceptions do exist, overall the Bureau completes its merger reviews within the applicable review period in a high percentage of cases.
It is important to keep in mind that review periods are based on non-binding review periods set out in the Bureau’s Fee and Service Standards Handbook. These are wholly distinct from the statutory waiting periods set out in Part IX of the Competition Act.
Canada’s recent move to a stricter cartel law that does not require proof of market effect is considered to be a shift towards American cartel law, where hard core cartels receive per se treatment. The new Canadian law can raise complicated issues with respect to joint venture activities. It defines criminal cartels as agreements between “competitors” to engage in the activities of fixing price, allocating markets or controlling supply. These activities may also arise in the context of what would otherwise be considered legitimate joint ventures. Although the Commissioner’s Competitor Collaboration Guidelines indicate that the new parallel reviewable matter provision for agreements that substantially lessen or prevent competition is the preferred approach for the assessment of legitimate joint venture agreements, she nonetheless has the discretion to recommend that such agreements be subject to criminal prosecution. Private litigants may also bring private actions in respect of joint venture activities that they allege contravene the cartel provision.
Continue Reading...Susan M. Hutton and Michael Kilby
On September 18, 2009, following a consultation and comment period, the Competition Bureau issued its final Merger Review Process Guidelines, which explain the Bureau's approach to administering Canada's new, two-stage merger review process. The publication of the final Guidelines sheds important light on the Bureau's approach to the new process - especially given the lack of meaningful debate within the Canadian competition bar or Parliament as to the desirability or scope of the changes, prior to them becoming law in March, 2009, as part of an omnibus budget stimulus package rushed through Parliament in response to the economic crisis.
In summary, the new Canadian merger review process mimics that in the U.S., with an initial thirty-day waiting period, which can be extended for another thirty days after the merging parties comply with a "supplementary information request," or SIR, if one is issued during the initial waiting period. Anyone familiar with U.S. merger review will, of course, also be aware of the complaints regarding the enormous time and expense of complying with such "second requests" - and the questions regarding the efficiency of what some see as disproportional document production requirements.
While the Bureau was quick to deny that it would mimic the U.S. approach in terms of either the scope of documentary production, or the number of such requests that are issued, the Guidelines - and recent experience1 - indicate that many features of U.S. procedure and practice have been adopted - creating a more burdensome process for merging parties in complex cases than they were used to under the old regime.2
Continue Reading...The Competition Bureau announced today that it has reached an agreement with Danaher Corporation to resolve its concerns with respect to Danaher's acquisition of MDS Inc.'s Analytical Technologies business. Danaher has also signed a consent decree with the United States Federal Trade Commission, which the Bureau determined was sufficient to adequately resolve competition concerns in Canada.
Pursuant to the U.S. decree, Danaher agreed to a divestiture of MDS's Arcturus brand of laser microdissection (LMD) instruments, reagents and consumables to Life Technologies Corporation. The divestiture package includes all relevant Canadian intellectual property rights relating to Arcturus LMD instruments in Canada.
Susan M. Hutton and Ashley M. Weber
Amendments to the Notifiable Transactions Regulations made under the Competition Act (the Regulations) came into force on February 2, 2010. These amendments reflect the legislative amendments to the Competition Act passed in March, 2009. The highlights include the creation of a uniform notification form for all transactions, changes to the prescribed information that must be supplied to the Commissioner, and stipulations as to how certain asset and revenue values are to be calculated for amalgamations.
Jeffrey Brown and Kevin Rushton
On January 25, 2010, the Competition Bureau announced that it had entered into a consent agreement with Ticketmaster Entertainment, Inc. and Live Nation, Inc. to resolve competition concerns identified by the Bureau with respect to their proposed merger. The Bureau's announcement coincided with a similar announcement by the U.S. Department of Justice Antitrust Division, with whom the Bureau cooperated closely in its review.
Continue Reading...The Competition Bureau announced today that it has reached a consent agreement with Ticketmaster Entertainment, Inc. and Live Nation, Inc. that resolves the Bureau's concerns about their proposed merger. The agreement requires divestitures by Ticketmaster to facilitate competition in the ticketing services market. It also requires Ticketmaster to sell its Paciolan ticketing business and to licence its ticketing system for use by a third party event promoter. The consent agreement also contains some behavioural provisions.
Unless changed by regulation, the "size of target" threshold for advance notification under the Competition Act of transactions involving Canadian businesses will likely be reduced to C$67 million, in accordance with the GDP indexing provisions which were introduced in amendments to the Act last March. The amount will be official once published by the Minister in the Canada Gazette, and until then the previous C$70 million threshold continues to apply.
Continue Reading...The Competition Bureau has settled a number of long-running merger reviews in recent months:
On July 21, 2009, Canada's Competition Bureau announced that it had reached a consent agreement with Suncor and Petro-Canada in connection with their proposed merger, previously announced on March 23, 2009. The consent agreement addresses the Bureau's concerns that the merger may have led to a substantial lessening of competition and increased retail gasoline prices. Specifically, the consent agreement requires that the parties:
Continue Reading...In March, 2009, the Competition Bureau released in final form a Bulletin to provide "practical guidance" on the Bureau's approach to "efficiencies" claims in mergers, as provided for in section 96 of the Competition Act (the Act). In particular, the Bulletin addresses the information required and the analytical approach to be used to determine when the Bureau will refrain from challenging on a merger on the grounds that the efficiency gains likely to be brought about by the merger will be greater than and will offset the anticompetitive effects likely to arise from it. The Bulletin, released in draft for public comment in August 2008, is said to supplement the discussion of efficiencies in the Bureau's Merger Enforcement Guidelines (revised in 2004), commonly known as the MEGs.
Continue Reading...The Canadian Competition Bureau recently unveiled draft new Guidelines for The Revised Merger Review Process, as well as a proposed Regulation Amending the Notifiable Transactions Regulations1.Both documents are in draft form, with comments requested by May 29, 2009 in the case of the draft Guidelines, and by June 3, 20092 in the case of the proposed Regulation. The sudden implementation of a U.S.-style two-stage merger review process on March 12, 2009 left the Bureau rushing to update the filing requirements, not least because the current Regulation speaks of a choice between a short-form and a long-form notification that no longer exists. The Bureau's draft process Guidelines seek to answer questions concerning "supplementary information requests," the equivalent of so-called "second requests" for documents and information in the United States. The issuance of such a request triggers the second stage of merger review and suspends the waiting period while the parties supply the additional information requested.
Continue Reading...Canada's Competition Bureau recently released a Backgrounder explaining the results of its review of the acquisition by Superior Plus LP of various propane assets of Irving Oil Limited/Irving Oil Marketing Limited. Notwithstanding acceptance by the Commissioner of Competition that the acquisition would result in efficiencies, the Commissioner forced Superior to divest itself of certain Irving propane-storage assets to another Newfoundland competitor.
Continue Reading...Susan M. Hutton and Kevin Rushton
On March 12, 2009, the Canadian government enacted the most significant amendments in over 20 years to Canada's competition and foreign investment regimes, as part of Bill C-10, the Budget Implementation Act, 2009. The amendments to the Competition Act result in fundamental changes to the way that business operates in Canada, and provide the Competition Bureau with unprecedented enforcement tools and/or penalties in all areas. Fewer foreign investments in Canada will meet the increased thresholds for Ministerial review and approval under the changed Investment Canada Act, but all such investments will face potential scrutiny under a new "national security" test. The most significant amendments to both these laws are discussed below.
Continue Reading...Jeffrey Brown and Kevin Rushton
On March 12, 2009, the most significant amendments to Canada's competition and foreign investment regimes in more than 20 years were enacted when Bill C-10, the Budget Implementation Act, 2009, received Royal Assent. The amendments were described in detail in the February 20, 2009 edition of The Competitor.
The Canadian Competition Bureau will be pleased today, as significant and far-reaching amendments to the Competition Act and the Investment Canada Act were included in the Budget Implementation, 2009 bill (C-10), which was tabled today in the House of Commons by the Canadian government (see Parts XII and XIII).
Continue Reading...The announcement by the Competition Bureau on January 16, 2009 that it has concluded there is insufficient evidence to challenge the acquisition of Lakeport Brewing Income Fund (Lakeport) by Labatt Brewing Company (Labatt) brings to an end one of the most heated skirmishes in the annals of Canadian competition law. The outcome of what could be among the lengthiest merger reviews in Canadian legal history may well result in support by the Government for less judicial oversight of the merger review process, and for longer waiting periods, with a proposed move to US-style second request procedures.1 As described below, Shawn Neylan of Stikeman Elliott led the competition team for Lakeport prior to closing, supported by Michael Kilby. Litigation partner Katherine Kay successfully argued the case for Lakeport before the Competition Tribunal, in the hearing on the injunction application.
Canada's 40th Parliament opened on Wednesday, November 19, 2008 with the traditional Speech from the Throne, outlining the government's legislative priorities. In keeping with the turbulent economic times and with calls for greater supervision of business, the throne speech promised to "proceed with legislation to modernize our competition and investment laws, implementing many of the recommendations of the Competition Policy Review Panel."
Continue Reading...On Thursday, September 4, 2008, the Canadian Bar Association - National Competition Law Section (CBA or the Section) sent a short - and in places critical - response to the report by Mr. Brian Gover to the Commissioner of Competition and the Deputy Minister of Justice regarding the Competition Bureau's practices in obtaining court orders for the production of information and documents under section 11 of the Competition Act.
The Report (dated June 19, 2008 and publicly released on August 12, 2008)1 had been commissioned by the government2 in response to the Federal Court's decision to set aside a section 11 order that had been issued ex parte in the Labatt/Lakeport merger inquiry3. The Court had found the Commissioner's affidavit evidence used to obtain the order to have been "misleading, inaccurate and incomplete." While her officials asserted that this conclusion was unfounded, the Commissioner and the Deputy Minister of Justice nonetheless asked Mr. Gover, a private practitioner with Stockwoods LLP, to review and advise on the standard of disclosure required in ex parte applications under the Competition Act, as well as on the Bureau's section 11 process generally.
On July 28, 2008, Canada's Ministry of Transport, Infrastructure and Communities (Transport Canada) released draft Guidelines for Mergers & Acquisitions Involving Transportation Undertakings (the Transport M&A Guidelines). The Transport M&A Guidelines, which were prepared in consultation with Canada's Competition Bureau, relate to the potential for a public interest review under section 53.1 of the Canada Transportation Act (the CTA) of certain proposed merger transactions involving federal transportation undertakings (those having an inter-provincial or international dimension).1,2
Transport Canada has also requested input on the possibility of new regulations exempting certain classes of transactions from the merger and review provisions of the CTA. Submissions related to the draft Transport M&A Guidelines and/or to exempting classes of transactions will be accepted until September 30, 2008.
Continue Reading...On June 26, the blue-ribbon Competition Policy Review Panel issued its report to the federal Industry Minister on how to raise Canada's standard of living through greater competition and productivity, calling for urgent action to improve Canada's competitive position.
The report, "Compete to Win," is wide-ranging and thought-provoking, canvassing issues ranging from education, immigration, taxation, and securities regulation to specific proposals to amend Canada's competition and foreign investment review laws. Implementation of all, or even many, of the Panel's sixty-five recommendations would result in fundamental changes to the way business operates in Canada.
Continue Reading...Nearly six years after the Standing Committee on Industry, Science and Technology released its report "A Plan to Modernize Canada's Competition Act," and more than two years after the death of Bill C-19 on the parliamentary order paper, Parliament is once again considering a proposal to make significant amendments to the Competition Act.
A private member's bill, introduced by Bloc Québécois MP Roger Gaudet last October, has received second reading in Parliament, and will now move to Committee for debate. If passed in its current form, it would entail such significant - and controversial - changes as:
Continue Reading...On January 28, 2008, at the request of Labatt Brewing Company Limited (Labatt), the Federal Court set aside its own order (of November 8, 2007) requiring Labatt to produce documents related to the Commissioner's ongoing investigation of the Labatt/Lakeport merger (the merger), which closed on March 29, 2007. The original order was obtained on an ex parte (without notice to Labatt) application by the Commissioner of Competition (the Commissioner) under Section 11 of the Competition Act1 (the Act). The Court did so on the grounds that the disclosure made to secure the order was misleading, inaccurate and incomplete and, had complete disclosure been provided, the November 8, 2007 order would not have been granted (at least not on the terms on which it was granted). This most recent decision is just the latest in a series of decisions against the Commissioner respecting her investigation into the merger2 and raises a number of interesting questions about how this may affect the Competition Bureau's approach to formal investigations going forward.
Continue Reading...Shawn Neylan and Michael Kilby
On January 22, 2008, the Federal Court of Appeal dismissed the appeal by the Commissioner of Competition in the Labatt/Lakeport merger, delivering its judgment from the bench, after having heard arguments only from the Commissioner's counsel.
The appeal was from an order of the Competition Tribunal made on March 28, 2007, dismissing the Commissioner's application under s.100 of the Competition Act to delay closing of the acquisition of Lakeport Brewing Income Fund (Lakeport) by Labatt Brewing Company Limited (Labatt). This transaction closed on March 29, 2007. Shawn Neylan of Stikeman Elliott LLP led the competition team for Lakeport, supported by Michael Kilby. Litigation partner Katherine Kayargued the case for Lakeport at the Tribunal.
The determinative issue in the Tribunal's decision was whether the potential post-closing remedies of dissolution and divestiture could effectively remedy a substantial lessening of competition (SLC) assuming an SLC were later established, since at the time of the hearing the Commissioner had not concluded that there would be a SLC as a result of the transaction, but was requesting more time to complete her review. The Tribunal found that the Commissioner had not met the burden of establishing that closing would substantially impair the Tribunal's ability to remedy an SLC, and accordingly dismissed the Commissioner's application. The Tribunal pointed out that Canadian merger remedies need not restore the pre-merger situation (as in the U.S.), but need only restore competition to the point that there is no substantial lessening of competition, a point which the Tribunal's decision indicated that the Commissioner's evidence had not addressed.
Continue Reading...On December 20, 2007, American Iron & Metal Incorporated (“AIM”) made a Competition Act merger filing with respect to its proposed acquisition of SNF Incorporated (“SNF”). AIM and SNF were two leading scrap metals collectors and processors in Eastern Canada. On January 28, 2008, the Commissioner of Competition applied to the Tribunal for an order to prevent the closing and/or implementation of the proposed transaction pursuant to section 100 of the Act. The Competition Bureau subsequently negotiated a consent agreement requiring AIM to preserve the assets of concern for a period of 60 days to allow for completion of the merger review. In light of the consent agreement, the section 100 application did not go to hearing. The proposed transaction closed on February 5, 2008.
On January 22, 2008, the Federal Court of Appeal dismissed an appeal by the Commissioner of Competition (the Commissioner) of the Competition Tribunal's refusal to grant an injunctive order under s. 100 of the Competition Act. The order would have delayed the closing of Labatt Brewing Company Limited's acquisition of Lakeport Brewing Income Fund. The Tribunal's decision not to grant the injunctive order was a landmark in Canadian merger review law. It has now been upheld by the Court in a resounding manner, as the Court concluded it did not need to hear submissions from Labatt's counsel. The Court is expected to issue reasons for its decision in due course. We will send out an update when those reasons are issued.
Shawn Neylan and Katherine Kay of Stikeman Elliott were competition counsel to Lakeport (until its acquisition by Labatt), successfully defending the Commissioner's request to the Tribunal for an injunction in the original proceedings.
On December 20, 2007, the Competition Bureau announced the end to five years of litigation concerning the Stocking Distributor Program (SDP) of Canada Pipe Company Ltd. with the filing of a consent agreement with the Competition Tribunal. The consent agreement pre-empts the Tribunal's re-determination proceedings in the case. As a result, the proper legal approach to the Competition Act's abuse of dominance provision, in light of the Commissioner of Competition's position in the proceedings, has yet to be resolved.
Continue Reading...On December 14, 2006, the Competition Bureau announced that a consent agreement was filed with the Competition Tribunal in relation to the acquisition by Akzo Nobel N.V. (Nobel) of Imperial Chemical Industries (ICI). Nobel's paint brands include Sico, PARA, Béntonel and Crown Diamond, while ICI's brands include CIL, Glidden, Colour Your World and Ralph Lauren.
The consent agreement requires Nobel to divest certain paint brands, including the PARA business and the Crown Diamond brand, and related assets in Canada in order to address the Bureau's competition concerns in the supply of paint resulting from the acquisition of ICI. In addition, the consent agreement requires Nobel, for a period of five years, to cease a program in Quebec that rewards retailers for carrying only Nobel brands or for the number of Nobel brands purchased in Quebec.
On October 30, 2007, the Competition Bureau (the "Bureau") released its technical backgrounder on the approval of the pulp and paper merger involving Montreal-based Abitibi-Consolidated Inc. and South Carolina-based Bowater Incorporated. The merger was originally announced on January 29, 2007, and the Bureau pronounced its intention not to challenge approximately 6 months later, on July 24 of the same year.
The Bureau concluded there were six overlapping product markets as follows: softwood lumber (North America), market pulp (at least North America), wood chips (local or regional), roundwood/logs (local or regional), uncoated groundwood papers ("UGW")(unspecified), and newsprint (Eastern Canada).
For each of the markets with the exception of newsprint, the Bureau easily concluded there were no grounds to challenge the merger. The newsprint market, however, led to a more in-depth analysis, as combined market share surpassed the Bureau's "safe harbour" guideline of 35% in the Eastern Canadian market. This concern was compounded by significant barriers to entry, due to the high capital investment required declining demand, and relatively weak foreign competition. However, on balance the Bureau concluded that competitors' production could be recommitted to Eastern Canada in the event of price increases, and customers had shown a willingness to switch suppliers in the past.
At the end of the day, the Bureau was not without its reservations, but did not find sufficient evidence to challenge the merger. The backgrounder did make mention, however, of the Bureau's right to do so over the next three years.
Susan M. Hutton and Ian Disend
Bill C-11, An Act to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other Acts, received Royal Assent on June 22, 2007. Bill C-11 changes the merger review regime for all transactions involving transportation undertakings which transactions otherwise are required to be notified under Part IX of the Competition Act.
According to the new provisions of the Canada Transportation Act, when notification is required under s. 114(1) of the Competition Act, parties to a proposed transaction involving any "transportation undertaking" (as opposed to only air transportation undertakings, as before) must now give notice to the Minister of Transportation (the Minister). The requirement that the Canadian Transportation Agency (the Agency) must also be given notice for air transportation undertakings remains unchanged.
Continue Reading...Susan M. Hutton and Ian Disend
On July 5, several major players in Canada's grain-handling industry finalized plans for divestitures as agreed with the Competition Bureau (the Bureau). The most recent divestitures were required following the June, 2007 acquisition by Regina-based Saskatchewan Wheat Pool (SWP) of Winnipeg-based Agricore United (AU). However, the entire process dates back to the beginning of the most recent round of grain-handling consolidation in 2001, when United Grain Growers Ltd. (UGG) acquired Agricore Cooperative Ltd. (ACL). The complicated package of remedies includes the following:
Continue Reading...The Competition Tribunal has dismissed an application by the Commissioner of Competition to delay closing of a transaction between Labatt Brewing Company and Lakeport Brewing Income Fund. Both parties sell beer in Ontario. Stikeman Elliott represented Lakeport on the transaction and before the Competition Tribunal.
On February 1, 2007, Labatt and Lakeport jointly announced a supported offer by Labatt for all of Lakeport's trust units. The parties mailed their offer materials on February 22 and the offer period expired on March 29. The parties also filed long form merger notification materials under the Competition Act - the statutory waiting period relating to those expired on March 26. Lakeport units trade on the Toronto Stock Exchange.
The support agreement included an obligation for Labatt to attempt to negotiate a "hold separate" arrangement with the Commissioner of Competition, if needed, and to take any and all possible steps within the requirements of the support agreement to be able to pay for the units at the earliest possible date, including vigorously resisting any application by the Commissioner to delay closing.
Continue Reading...Bill C-11, An Act to Amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other Acts, received second reading in Parliament and was referred to committee.
As reported in the July, 2006 edition of The Competitor, Bill C-11 would require the notification of acquisitions of all "transportation undertakings" to the Minister of Transport, by sending a copy of the notification to the Minister (and, in the case of airlines, to the Canada Transportation Agency) at the same time that it is submitted to the Commissioner of Competition. The Minister will then have 42 days to decide whether to commence an inquiry by the Agency or another person into whether the acquisition is in the "public interest."
If a public interest review is commenced, the Commissioner will have up to 150 days after initial notification to report any competition concerns to the Minister, who will take the Commissioner's views into account in determining whether to recommend that Cabinet approve the proposed transaction. Such public interest reviews are currently possible in respect of the acquisition of air transportation undertakings only.
Bill C-11, when enacted, will extend such reviews to all transportation acquisitions. CTA reviews will be in addition to any review on the basis of public interest required under the Investment Canada Act.
Susan M. Hutton and Michael Kilby
On September 22, 2006, the Competition Bureau published its Information Bulletin on Merger Remedies in Canada (Bulletin). The Bulletin is intended to provide guidance on the general principles applied by the Bureau when it seeks, designs, and implements remedies in merger cases. The Bureau intends to include, as an appendix, an outline of a model consent agreement, which it says will be published "shortly". The final Bulletin was issued just in time for the Canadian Bar Association's Annual Fall Competition Law Conference, almost a year after the initial draft bulletin in November, 2005.
The Bulletin must be read in the context of the merger remedies guidelines issued by Europe and the U.S. as part of the International Competition Network's work on improving international competition enforcement. In cooperating with other enforcement agencies internationally, Canada may rely on foreign remedies if they do not raise any Canada-specific issues.
The recently published Bulletin is substantially the same as the initial draft bulletin (highlights of which were published in the November 2005 edition of The Competitor). Similar to its predecessor, the Bulletin marks an intended tightening of the Bureau's stance toward divestitures, with shortened time-lines for divestitures, an emphasis on "fix-it-first" and "up-front buyer" solutions, and the use of "crown jewels" in the case of trustee divestitures. Noteworthy highlights include:
A preference for structural over behavioural remedies.
A strong recommendation to merging parties to use a "fix it first" approach, whereby merging parties remedy competition issues before closing the main transaction. "Fix it first" remedies also include signed agreements for a party to divest its assets, to be executed on closing, subject to Bureau approval.
If upfront divestiture is not possible, the Bureau indicates that it expects sales processes to be concluded within 3 to 6 month (the precise time period will be kept confidential). This is a shift in the Bureau's approach, which has permitted a 6 to 12 month initial divestiture period in the past.
The increased use of "crown jewels" during the trustee sale period.
Speaking at the Canadian Bar Association's Annual Fall Conference on Competition Law, Sheridan Scott, Commissioner of Competition, offered new insights to the Bureau's approach to efficiencies in merger analysis. Most significantly, the Commissioner stated that the Bureau "would not necessarily require recourse to the [Competition] Tribunal in a case where the efficiencies resulting from the merger would clearly be greater than and offset any anti-competitive effects; rather, while our experience suggests that such cases are rare, we could, if sufficiently satisfied on the evidence, make our own independent assessment of efficiencies, and clear the merger on that basis."1 In that regard, the Commissioner urged parties to make efficiencies submissions and "not to be deterred by an unfounded notion that to do so is somehow an admission of anti-competitive concern."
Under section 96 of the Competition Act - the so-called "efficiency defence" - a merger cannot be prohibited if it is likely to result in efficiency gains that are greater than, and offset, the effects of any substantial prevention or lessening of competition from the merger, provided that the efficiencies would not likely be achieved if the merger were prohibited. The Bureau's past practice had been to litigate the application of section 96 before the Tribunal, rather than to clear a transaction on those grounds.2
The Bureau's apparent change of approach to the application of section 96 is welcome news, given the Bureau's responsibility to administer the statute as a whole. Given the extreme rarity of cases in which the efficiencies defense is the determining factor, however, the change of approach will not ultimately affect many transactions.
Susan M. Hutton and Martin Lapner
On June 23, 2006, the Competition Bureau filed a consent agreement with the Competition Tribunal regarding the BBM Canada-Nielsen Media Research Limited merger. The consent agreement resolves potential competition issues arising from the merger of the electronic television audience measurement (TAM) operations of both companies. Despite the consolidation of TAM data collection in Canada, the Bureau observed that the development of a standard TAM system had widespread support in the industry, that the merger would likely result in decreased costs to purchasers, and that both parties could still competitively market proprietary analytic tools to be used on the data collected by the merged company. Beyond these benefits, the consent agreement allows for independent audits to be conducted on the merged company in order to monitor the provision of quality services to purchasers. The consent agreement is interesting in that it would appear to embody a flexible and pragmatic approach by the Bureau to mergers involving significant efficiencies - even while the law on efficiencies remains in disarray.
Susan Hutton and Alexandra Stockwell
Canada's Competition Bureau recently released a Technical Backgrounder explaining its analysis of GlaxoSmithKline Inc.'s (GSK's) acquisition of ID Biomedical Corporation (IDB), both active in the development and marketing of vaccines. Interestingly, the transaction was classified as "complex," although ultimately the Bureau found that it would have little, if any, competitive impact as there was no product overlap. The Bureau may have treated the transaction with particular care due to its involvement with products essential to public health and safety, and in particular influenza vaccines. IDB supplies 75% of Canada's annual public requirements for influenza vaccines, and will do so until at least 2008, when one of its government contracts expires. The Bureau observed that, although an active producer of other vaccines and involved in vaccine development generally, GSK had never sold influenza vaccines in Canada, and that there will likely be a number of companies capable of bidding for Canadian influenza vaccine requirements when contracts come up for renewal. In addition, the Bureau noted that public health officials did not see the merger as endangering the security of supply of the vaccine for Canadians.
An important element in the Bureau's overall holding was its finding that there is no product overlap in Canada between GSK and IDB. Both companies have pipeline products aimed at certain respiratory ailments, as well as a Meningococcal strain and certain allergies. The Bureau was undeterred by this fact, however, as it said the products in question were years away from commercial viability and other pharmaceutical companies were also developing potential vaccines for the same diseases.
Jeffrey Brown and Alexandra Stockwell
On May 4, 2006, the Honourable Lawrence Cannon, Minister of Transport, Infrastructure and Communities, introduced amendments to the Canada Transportation Act (CTA). Minister Cannon promotes the changes as balancing the interests of communities and consumers with those of air and rail carriers, leading to "a transportation framework that can better meet future economic . challenges." However, the amendments, if enacted, could also present unforeseen challenges to some Canadian businesses, especially in terms of mergers and acquisitions.
Bill C-11, An Act to Amend the Canada Transportation Act and the Railway Safety Act, is similar to Bill C-44, brought forward by the previous government in its dying days. The amendments are described by the government as introducing a public interest review process for mergers and acquisitions of all federally regulated transportation services. At present, the CTA's provisions relating to merger and acquisition review are found in Part II of the Act, and apply only to air transportation undertakings. The amendments would move the provisions to Part I of the Act, making most of them applicable to all transportation undertakings. Canadian control and ownership requirements, however, would not extend to all forms of transportation, but rather would continue to apply exclusively to air transport services.
Continue Reading...Susan Hutton and Alexandra Stockwell
The Canadian Competition Bureau recently released a Technical Backgrounder explaining the reasoning behind its mid-March 2006 clearance of the acquisition of Maytag by Whirlpool. Both parties are manufacturers of household appliances. For the purposes of competitive review, the product market was defined as the five major home appliances: washers and dryers (the "laundry" segment), refrigerators, dishwashers and ranges. Although both Maytag Canada and Whirlpool Canada were viewed as industry leaders, especially in the laundry segment, and post-merger shares in this segment were significant, the Bureau held that effective competition would remain after the acquisition.
In assessing the proposed merger, the Bureau decided that appliances manufactured by Whirlpool or Maytag and sold under a retailer's house brand should not be attributed to the merged entity, but should rather be treated as an independent competitor in the marketplace. In coming to this decision, the Bureau considered that the retailer owns and controls the house brand and makes all decisions regarding pricing and marketing; that the retailer is often responsible for its own warehousing and distribution, and provides its own product warranties and servicing for its house brands; that there are several remaining manufacturers available to compete for house-brand supply contracts; and that retailers can and do switch from one appliance manufacturer to another, if no long-term manufacturing contract is in place.
In effect, this decision recognizes the changing roles of large retailers, which can function simultaneously as distributors for and competitors to the OEMs.
On March 1, 2006, following the filing of a consent agreement with the Competition Tribunal, PaperlinX Canada (formerly Coast Paper Ltd.) completed its acquisition of Cascades Fine Paper Group Inc.'s fine paper merchant business known as Cascades Resources. The closing followed PaperlinX Limited's November 17, 2005 announcement from its headquarters in Melbourne, Australia of its intention to acquire the Cascades Resources paper merchant business.
Both Cascades Resources and PaperlinX sell fine paper products in many parts of Canada. Fine paper is used to print a wide variety of products including brochures and books.
Continue Reading...Susan M. Hutton and Michael Kilby
In a flurry of announcements this fall, the Canadian Competition Bureau released a draft Information Bulletin on Merger Remedies in Canada. Comments are requested by January 20, 2006. Highlights of the draft Bulletin of note to practitioners include:
a preference for structural remedies (such as divestiture) to behavioural remedies (which, in the Bureau's view, may require monitoring and/or risk being ineffective).
acceptance of partial divestitures (e.g., selected manufacturing facilities, retail locations, products or product lines, intellectual property or other discrete assets), subject to satisfaction that willing buyers are available. In this regard, the Bureau may seek information from the marketplace to verify the likely viability and effectiveness of the proposed remedy.
a strong recommendation to merging parties to use a "fix it first" approach, which means either completion of a divestiture of a party's own assets before the main transaction closes or a signed agreement in this regard, to be executed on closing of the main transaction. Registration of a consent agreement in such circumstances will not normally be required.
if up-front divestiture is not possible, the Bureau indicates it expects sales processes to be concluded within between 3 and 6 months after closing (considerably shorter time limits than many prior consent agreements would indicate).
the increased use of "crown jewels" during the trustee sale period, to provide the vendor with an incentive to complete the initial divestiture in a timely fashion, and/or to enhance its marketability in the hands of the trustee.
the draft Bulletin indicates that certain terms of agreed remedies can initially be kept confidential. Such information as the initial time period for sale before the assets are transferred to a trustee, the fact that there is no minimum price, and the assets forming part of a "crown jewel" package, may be kept confidential. Full disclosure will be the norm, however, if other jurisdictions disclose such information, or in the case of cases that are contested before the Competition Tribunal (in which case the full text of a proposed order will be made public at the time the application is filed).
the draft Bulletin also contains an indication that, in cooperating with other competition enforcement agencies internationally, Canada may rely on remedies arrived at in foreign jurisdictions if they raise no Canada-specific issues.
The shortened time limits for initial divestiture, the increased desire for crown jewels, and the emphasis on up-front buyers and other "fix it first" remedies are likely to engender significant comment amongst merger specialists and their clients.
The Competition Bureau released a Technical Backgrounder on August 31, 2005 that outlines the reasoning behind its approval of the acquisition of the Better Beef Group of Companies (Better Beef) by Cargill Limited (Cargill"). Better Beef and Cargill are both integrated beef packers, who slaughter cattle and fabricate, package and market beef products. The Bureau examined in depth the potential upstream impact on competition for Canadian cattle, as well as the downstream impact on Eastern Canadian competition for the sale of case-ready beef (meat cut and packaged suitable for display in retail stores). On the buying side, the Bureau concluded there are separate Western and Eastern cattle markets and minimal actual overlap between the parties. For case-ready beef, despite the large market shares of the parties, the Bureau concluded that the threat of entry by and the countervailing power of retail grocery firms make the merger unlikely to lessen or prevent competition substantially in any relevant market.
On May 27, 2005, Cineplex Galaxy (“Cineplex”) entered into a consent agreement with the Competition Bureau to complete its acquisition of Famous Players. After an extensive merger review process, the Competition Bureau concluded the proposed transaction was likely to result in a substantial lessening of competition in the exhibition of first-run motion pictures in a number of urban areas. In the consent agreement, Cineplex agreed to sell 35 theatres in 17 cities with total annual box-office revenues of approximately CDN$100 million. The divestiture package included both stadiums and sloped theatres. The proposed transaction closed on July 22, 2005.
BY D. JEFFREY BROWN
On May 30, 2005, the Competition Tribunal (the Tribunal) rescinded a consent agreement previously registered in September, 2003, on the basis of a "change in circumstances" pursuant to s. 106 of the Competition Act (the Act). The consent agreement had sought to resolve a concern expressed by the Commissioner of Competition (the Commissioner) that the acquisition by RONA Inc. (RONA) of Réno Dépôt and The Building Box "big box" home improvement stores from Kingfisher plc (Kingfisher) would substantially lessen competition in Sherbrooke, Quebec. To address this concern, the consent agreement had required that RONA divest to an independent third party the Réno Dépôt store in Sherbrooke.
Continue Reading...Michael Mahoney
Canada's Competition Bureau (the Bureau) has issued a technical backgrounder summarizing the reasoning behind its clearance of the November, 2004 acquisition of #4 positioned Microcell Telecommunications Inc. (Microcell) by #3 positioned Rogers Wireless Communications Inc. (Rogers Wireless). The deal created the largest (by subscriber base) wireless telecoms provider in the country, and reduced the number of principal wireless competitors to three.1 The backgrounder is noteworthy, because it provides guidance as to how the Bureau is applying the revised Merger Enforcement Guidelines (the MEGs)2 with respect to, among other things, market definition in the fast-moving world of telecoms, co-ordinated effects (or "interdependence") analysis, and the influence (or lack thereof) of a "maverick" firm. It also clearly reveals a forward-looking focus to merger analysis. After a hiatus of several years, the Bureau has indicated that, in the interests of transparency (but bearing in mind confidentiality obligations) it will again be issuing backgrounders on selected cases that raise interesting issues.3
Continue Reading...In an application filed with the Competition Tribunal (Tribunal) on January 10, 2005, RONA Inc. (RONA) has asked the Tribunal to rescind a Consent Agreement filed with the Tribunal on September 3, 2003. The Consent Agreement resolved concerns raised by the Commissioner of Competition (the Commissioner) that RONA's acquisition of Réno Dépôt and The Building Box "big-box" home improvement stores from Kingfisher plc (Kingfisher) would substantially lessen competition in Sherbrooke, Quebec. In order to resolve these concerns, RONA agreed to divest to an independent third party the Réno Dépôt store in Sherbrooke.
Continue Reading...On November 18, 2004, the Competition Bureau filed a consent interim agreement requiring Tolko Industries Ltd. (“Tolko”) to hold separate certain milling assets at the Riverside Okanagan Manufacturing Facilities, while the Bureau completed its review of the proposed transaction. Tolko made an unsolicited bid for Riverside Forest Products Ltd. (“Riverside”) in August 2004. The hold separate agreement required Tolko to continue to run the facility independently for 45 days while the Bureau completed its review. On January 24, 2005, Tolko acquired 100% of the common shares of Riverside.
On October 3, 2001, the Competition Tribunal issued an order requiring Canadian Waste Services Holdings (“CWS”) to divest a landfill. In 2004, CWS applied to the Tribunal to set aside the divestiture order from 2001 and replace it with an order requiring the divestiture of a different landfill site on the basis that circumstances which led to making the original divestiture order had changed. The Tribunal dismissed the application on the grounds that CWS could not raise revised expectations about timing as changes of circumstances when it determined that such facts could reasonably have been known by CWS at the time of the hearing in 2001.
On December 7, 2004, the Competition Bureau entered into a consent agreement with West Fraser Timber Co. Ltd (“West Fraser”) and Weldwood of Canada Ltd. to divert both parties’ saw mill interests in Burns Lake and Decker Lake, as well as the associated forest tenures. West Fraser also agreed to divest certain timber harvesting rights between the William Lake and 100 Mile House areas. The Competition Bureau concluded that such divestitures would remove significant barriers to competition for new and existing competitors in the market. West Fraser completed the acquisition on December 31, 2004
Susan M. Hutton and Patricia Martino
On September 21, 2004, the Competition Bureau issued the highly anticipated revised Merger Enforcement Guidelines (MEGs). The revised MEGs replace the Merger Enforcement Guidelines first published in 1991 as a comprehensive explanation of the Competition Bureau's (the Bureau) merger enforcement policy under the Competition Act. The Bureau released a draft version of the revised MEGs for public comment on March 25, 2004, which closely resembled the final document. As noted in the April 2004 edition of The Competitor, the new MEGs reflect a refinement of analytical approach rather than a wholesale change. Notably, the "safe harbour" market share thresholds are unchanged. That said, the new MEGs reveal important refinements of the Bureau's approach to, among other things:
Continue Reading...On November 25, 2003, the British Columbia Government granted Canadian National Railway Company (“CN”) the right to acquire all of the shares of BC Railway Ltd. (“BC Rail”), partnership units in the BC Rail partnership and a long-term licence to operate its railbed. In its review, the Competition Bureau concluded that the proposed transaction raised serious competition issues for rail interline transportation of commodities (e.g., lumber) and rail transportation of grain from the Peace River area.
In the consent agreement, CN agreed to open gateway rates by both publishing and maintaining tariffs inclusive of connection charges for each of BC Rail’s five distinct geographic zones and four different load weight categories. It also agreed to adjust rates annually based on an industry index; however, published rates could not be adjusted below initial levels.
Continue Reading...The U.S. Department of Justice has twice levied significant civil penalties for failure to notify transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the Hart-Scott-Rodino Act) in recent weeks.
William H. Gates III was ordered to pay US$800,000 as a result of his acquiring, through a limited liability company, 500,000 shares of Republic Services Inc. The acquisition resulted in Mr. Gates owning approximately 10.1% of the company's outstanding voting securities. Mr. Gates' failure to notify the transaction was the result of an improper, albeit inadvertent, reliance on an investment exemption.
Like Mr. Gates, Manulife Financial, a Canadian corporation, improperly relied on an investment exemption with costly consequences. Manulife was ordered to pay US$1,000,000 in relation to a failure to notify an acquisition of stock issued by John Hancock Financial Services, Inc. The Hart-Scott-Rodino Act exempts acquisitions of 10% or less of a company's stock if they are made "solely for the purpose of investment"; however, the government alleged that this exception was not available to Manulife since, by the spring of 2003, it was considering a merger with John Hancock
On April 22, 2004, the International Competition Network announced at the conclusion of the third annual meeting of global antitrust and competition law regulators that it had adopted four new Recommended Practices for merger notification procedures. Although the Recommended Practices are non-binding, they are nevertheless influential because they may form a baseline for sound competition enforcement practice.
On April 1, 2004, Canfor Corporation (“Canfor”) entered into a consent agreement with the Commissioner of Competition, in which it agreed to divest its Fort St. James sawmill, located near Prince George, British Columbia. In the proposed transaction, Canfor acquired all of the shares of Slocan Forest Products Ltd., which the Commissioner found was likely to result in a substantial lessening of competition around Prince George in respect of the purchase of logs, supply of inputs to remanufacturers, and sale and supply of wood chips. The proposed transaction closed the same day.
Susan M. Hutton and Catherine Mckenna
On March 25, 2004, the Canadian Competition Bureau released its highly anticipated draft revised Merger Enforcement Guidelines (Draft MEGs) for public comment. Once finalised this summer, they will replace the Merger Enforcement Guidelines first published in 1991 (1991 MEGs) as a comprehensive explanation of the Competition Bureau's merger enforcement policy under the Competition Act (the Act).
The revised MEGs are not intended to "reflect a shift in policy or direction" but rather to "clarify and explain the Bureau's current practice." Notably, the "safe harbour" market share thresholds established in the 1991 MEGs have not changed. Since 1991, however, there have been significant new developments in Canadian merger review, including a number of important Competition Tribunal and court decisions, as well as developments in the underlying economics. The Draft MEGs are intended to reflect these developments, and are replete with references not only to contested cases, but also to numerous uncontested cases decided - effectively - by the Commissioner.
Continue Reading...On March 20, 2003, the Commissioner of Competition entered into a consent agreement with Westway Holdings Canada Inc., to hold separate all assets and business being acquired from Tate and Lyle North American Sugar Ltd. with respect to its molasses operations. The consent agreement remained in force for 31 days to allow for the Commissioner to complete her review. Tate & Lyle was engaged in the business of storing and distributing molasses and molasses blended products, among other things. The proposed transaction closed on March 10, 2003.
Canada's Competition Bureau is seeking comments on its Bank Merger Enforcement Guidelines (BMEGs). The BMEGs were first published in 1998, in the course of the Bureau's review of the so-far-not-consummated bank mergers (the Minister of Finance ultimately nixed the merger of 4 of Canada's top banks into 2, even though the Bureau had conditionally approved both deals). Even as then-Finance Minister Paul Martin is set to become the next Prime Minister of Canada, speculation renews perennially that the banks will eventually consolidate. The review of the BMEGs is in response to the recommendation of a Parliamentary Committee that recently examined the prospect of bank mergers, but also coincides with a general overhaul of the Merger Enforcement Guidelines (the MEGs) by the Competition Bureau. Comments on the BMEGs have been requested by February 4, 2004. Details can be found on the Bureau's web-site: http://www.competition.ic.gc.ca/
In addition to preparing for the next round of amendments, the Competition Bureau is also in the early stages of reviewing the Merger Enforcement Guidelines (the MEGs), which were originally issued in 1992. The Bureau's objective is to modernize the MEGs to bring them into line with recent jurisprudence and economic thinking. At this stage, the Bureau is engaging in an informal consultation process with law firms and academics. The Bureau anticipates releasing revised draft MEGs in early spring 2004, at which time there will be broader public consultation.
The amended Bill C-249 would significantly restrict application of the ''efficiency defense'' for mergers under section 96(1) of the Competition Act.
As reported in the March 2003 issue of The Competitor, the Federal Court of Appeal, in a January 31, 2003 decision, upheld the Competition Tribunal's determination that efficiencies to be generated by the merger of Superior Propane Inc. with ICG Propane Inc. would outweigh its anticompetitive effects, thereby "saving" the merger pursuant to section 96(1) of the Competition Act, the so-called "efficiencies defence." On March 31, 2003, the Commissioner announced that he would not seek leave to appeal the decision from the Supreme Court of Canada.
Continue Reading...On April 1, 2003, long-anticipated changes to the thresholds for merger notification under the Competition Act (the "Act") and to Competition Bureau (the "Bureau") fees, service standards and advisory opinions process came into effect. These include:
The Bureau describes these changes as enhancing client service, presumably as a result of benefits derived from higher fees, the availability of binding opinions and a reduction in the regulatory burden for smaller businesses.
Continue Reading...On July 13, 2002, Pfizer Inc. entered into an agreement to acquire Pharmacia Corporation by way of a merger. Due to the overlap in their product offerings, on April 11, 2003, Pfizer Inc. entered into a consent agreement with the Commissioner of Competition to divest certain pharmaceutical assets pertaining to the treatment of human sexual dysfunction and overactive bladder symptoms. The divestitures were required to be completed within 10 business days from the closing of the transaction.
The merger was also reviewed by the FTC in the US; the FTC required Pfizer to divest pharmaceutical products in nine separate product categories including: extended release drugs for the treatment of overactive bladder; combination hormone replacement therapies; treatments for erectile dysfunction; drugs for canine arthritis; antibiotics for lactating cow mastitis; antibiotics for dry cow mastitis; over-the-counter hydrocortisone creams and ointments; over-the-counter motion sickness medications; and over-the-counter cough drops. Similar to Canada, the FTC required the divestitures be completed within 10 business days from the closing of the transaction. The transaction closed on April 16, 2003.
On January 31, 2003 the Federal Court released its reasons for judgment in The Commissioner of Competition v. Superior Propane Inc. and ICG Propane Inc.
Background
The case began in 1998, when the Commissioner challenged the acquisition of ICG by Superior. In 2000, the Competition Tribunal allowed the merger, even though it found that it would likely substantially lessen and prevent competition. The Tribunal's decision was based on the so-called "efficiency defence," i.e. that the efficiencies generated by the transaction would outweigh its anti-competitive effects. Subsequently, the Federal Court of Appeal ordered the Tribunal to rehear the case, taking into account other effects of lessened competition beyond those addressed in its original efficiency analysis, which used a "total surplus standard" approach.
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