Bureau relies on EC remedy in clearance of Thermo Fisher/Life Technologies transaction

Megan MacDonald and Anne MacIsaac -

On December 5, 2013, the Competition Bureau issued a No-Action Letter (NAL) clearing Thermo Fisher Scientific Inc.’s proposed acquisition of Life Technologies Corporation. The Bureau issued this clearance based, at least in part, on a remedy obtained by the European Commission (EC) in connection with the proposed acquisition in Europe.

Both Thermo Fisher and Life Technologies produce and supply life sciences products, including laboratory instruments and consumables, globally, including within Canada, the United States and Europe. Thermo Fisher’s proposed acquisition was subject to competition review in each of these jurisdictions.

As a condition of approving the merger in Europe, the EC required Thermo Fisher to divest businesses supplying a variety of products used in clinical and research applications in the life sciences sector. Stating that it “worked closely” with its foreign counterparts, the Bureau was satisfied that the divestiture of these businesses was sufficient to address concerns that the acquisition would substantially lessen or prevent competition in the sale of the relevant products in Canada.

The Bureau’s willingness to clear mergers in Canada based, at least in part, on remedies and divestitures obtained by foreign antitrust authorities, particularly those in the United States and Europe, has been demonstrated in connection with a number of recent mergers, including, among others, United Technology Corporation’s acquisition of Goodrich Corporation (2012), Nufarm Limited’s acquisition of AH Marks Holding Limited (2010), Schering-Plough’s acquisition of Organon BioSciences N.V. (2008) and Thomson Corporation’s acquisition of Reuters PLC (2008).

The Bureau’s consideration and reliance on remedies obtained in other jurisdictions to resolve competition concerns in Canada is but one aspect of the international collaboration taking place between the Bureau and other antitrust authorities. The Bureau states that it is increasingly “standard practice” to consult its foreign counterparts, particularly those in the United States and Europe, in addition to consulting a wide range of industry participants within Canada when reviewing a proposed acquisition with cross-border effects.

Federal Court of Appeal Upholds Competition Tribunal's Decision in the Tervita (CCS) Merger

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.

The $6 million acquisition closed in January 2011. Both the assets and the revenues of the target were well below the pre-merger notification thresholds in the Competition Act; however, in Canada the Commissioner has jurisdiction to challenge even non-notifiable transactions within one year of closing. On January 4, 2011, the Commissioner applied to the Tribunal for an order either to dissolve (i.e., unwind) the transaction between Tervita and Complete’s shareholders, or for Tervita to divest itself of Complete or Complete’s wholly–owned subsidiary, Babkirk Land Services on the grounds that it had substantially prevented competition.

Tervita argued that Complete had originally intended to run the site as a bioremediation business for neighbouring oil and gas companies, and not as a hazardous waste landfill, such that the required likely competition with Tervita was not made out. It also argued that expected efficiencies would be greater than and would offset any likely anti-competitive effects.

On May 29, 2012, the Tribunal ruled in favour of the Commissioner, finding that Tervita’s acquisition of Complete had likely substantially prevented competition in the market for the supply of landfill services for solid hazardous oil and gas waste in northeastern British Columbia.

To make this determination, the Tribunal questioned the viability of Complete’s bioremediation business, finding it likely that, within one year, the business would have failed and Complete would have either sold the site to a Tervita competitor or continued to operate it as a hazardous waste landfill site - in competition with Tervita. Either outcome would have resulted in direct competition with Tervita. As such, the Tribunal held that the merger had prevented the likely entry of a competitor. The Tribunal ordered that Tervita divest the shares or assets of Complete or of its subsidiary that held the landfill permits, Babkirk.

As noted in our previous blog post, CCS, Complete, and Babkirk filed a notice of appeal at the FCA on June 26, 2012.

They argued that the Tribunal had erred by looking beyond the date of the merger in its assessment of likely entry, and that it had speculated as to future events. They also argued that the Tribunal had erred in its analysis of the section 96 efficiencies defense.

Decision

Reasonable time period for market entry

The FCA affirmed that the likelihood of entry should be determined within a reasonable period of time following the merger. Entry need not necessarily have been poised to occur as of the date of the merger. The FCA held that the reasonable time period for assessing the likelihood of entry will vary from case to case and will depend on the nature of the business under consideration, but provided the following guidelines:

  1. there must be a clear and discernible timeframe for market entry; and
     
  2. market entry should normally occur within the temporal dimension of barriers to entry for that business.

The FCA also affirmed that the burden of proving that the target was a poised entrant, such that its acquisition substantially prevented competition, rested solely with the Commissioner.

“Efficiencies” defense clarified

Section 96 of the Act provides that where a merger otherwise results in a prevention or lessening of competition, the Tribunal may not make an order if the respondents can establish that the gains in efficiency resulting from the merger are greater than and offset its anti-competitive effects.

The FCA agreed with the Tribunal that section 96 of the Act requires a balancing of both quantitative and qualitative gains in efficiency against both quantitative and qualitative effects of any prevention or lessening of competition resulting or likely to result from a merger. However, it clarified that when quantifying efficiency gains and anti-competitive effects of a merger, the analysis must be as “objective as is reasonably possible, and where an objective determination cannot be made, it must be reasonable.” An objective analysis entails that a quantification of both gains in efficiency and anti-competitive effects must be carried out whenever it is reasonably possible to do so.

The FCA’s approach to quantification is in contrast to the Tribunal’s “subjective balancing” methodology, rejected by the FCA, which allowed for quantitative effects that had not been quantified to be given qualitative weight in certain circumstances.

Having disagreed with the Tribunal’s efficiency analysis, the FCA then conducted its own analysis using the evidence presented at trial. Although the FCA was unable to objectively weigh the quantifiable efficiency gains against anti-competitive effects because the Commissioner had not quantified such anti-competitive effects, it found that the gains in efficiencies resulting from the merger were “marginal to the point of being negligible” and could not reasonably have been considered to outweigh its anti-competitive effects. The FCA therefore dismissed the appeal and upheld the Tribunal’s Order.

Conclusion

The Tervita case is significant, as it demonstrates that the Commissioner is willing to challenge small, non-notifiable transactions when necessary. Furthermore, the FCA’s decision provides guidance regarding the analysis of “prevent” cases under Canadian law, and underscores the importance of properly assessing both the anti-competitive effects and the efficiency gains in contested merger cases.

CCS appeals Competition Tribunal's landfill decision; stay granted

 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.

CCS (now renamed Tervita Corporation), Complete, and Babkirk filed a notice of appeal at the Federal Court of Appeal on June 26, 2012. They have appealed the May 29, 2012 order, and are seeking to stay that order and the divestiture procedure order pending the appeal.

In a decision dated August 22, 2012, the Federal Court of Appeal granted the stay of those orders, subject to the condition that the appellants preserve the assets pending the outcome of the appeal. The Court applied the test in RJR – MacDonald Inc v Canada (AG):

  • First, there was at least one serious issue raised by the appellants: the question of the proper legal framework that applies in a prevention of competition case. The appellants allege that the Tribunal failed to apply or misapplied the test for a substantial prevention of competition and engaged in impermissible and unsupportable speculation. The Court found these to be serious and important issues.
  • Second, the Court found that the divestiture procedure order would irreparably harm CCS while the appeal was ongoing, since the order mandated that CCS divest itself of Babkirk at the earliest opportunity.
  • Third, the Court balanced the public interest in having competition in the market against the public interest in ensuring due process. The Court ruled that the balance of convenience favoured the appellants.

The outcome of this case is significant in several respects. First, the Tribunal’s decision addressed the test for substantial prevention of competition, an area where the Canadian jurisprudence is very sparse. Second, the case is also notable because the value of the CCS-Complete merger was only about Cdn$6 million, far below the merger notification threshold of Cdn$78 million, yet it was still reviewed and challenged by the Commissioner.

Canada's Commissioner wins prevent case - Tribunal orders divestiture of hazardous waste landfill

Ashley Weber -

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.

While the transaction was not subject to pre-merger notification under the Competition Act, in Canada the Commissioner has jurisdiction to challenge even non-notifiable transactions. Such challenges can be launched for up to one year after closing. Despite not being notified, the Commissioner learned of the transaction prior to closing, and informed the parties of her objection to the transaction.   

Of note, in her application, the Commissioner had sought dissolution as a possible remedy, which the respondents moved to challenge in November 2011 on the basis that dissolution was an overly broad and punitive measure. In the hearing on that motion Justice Simpson refused to grant summary disposition, and confirmed the possibility of dissolution as an effective remedy, concluding that it would be for the Tribunal to weigh the evidence for and against divestiture versus dissolution as potential remedies. 

The release of the Tribunal’s decision in this case is still pending.

Canada's Merger Control and Foreign Investment Regimes - selected recent developments

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.

To those familiar with US antitrust law, the above-outlined structure of the new Canadian regime clearly bears a close resemblance to the structure of US merger control law under the Hart-Scott-Rodino Act. However, two key differences between the Canadian and US regimes are that: a) it is possible in Canada, and even common, for parties to seek and obtain clearance for substantively simple transactions via an “advance ruling certificate” process, removing the need to make formal notification filings in the first place; and b) the expiry of the 30 calendar day waiting period in Canada does not amount to substantive comfort that the Commissioner has concluded that a transaction does not raise competition issues.

Since the new law came into force in March 2009, the rate at which the Commissioner and the Competition Bureau (the Bureau) have obtained negotiated remedies has increased dramatically in 2009 and 2010, as compared to historical levels. Indeed, between July 2009 and September 2010, (a 14 month period), the Bureau obtained Canadian competition law remedies in approximately 10 transactions, including numerous international transactions. Whether this is due to an increased number of strategic transactions or the new law is open to debate. Although it is impossible to say whether the Bureau could have obtained divestitures in respect of this number of transactions under the previous merger control regime, it is clear that this rate is considerably higher than in recent years where there were typically two or three merger remedies per year.2

Looking more closely at the transactions for which divestitures have been required, they vary greatly in terms of their Canadian elements. Some (Suncor/Petrocan, Clean Harbours /Everready and IESI-BFC/Waste Services) exclusively, or almost exclusively, raised competition issues in Canada and not in any foreign jurisdictions. In these situations, the Bureau obtained divestitures entirely independently from any foreign competition law regulators. Others (Pfizer/Wyeth, Merck/Schering Plough, Novartis/Alcon) were very much international mergers with relatively small Canadian components, and where international cooperation would have been significant in arriving at conclusions. Others still were international majors, but with relatively large Canadian components (e.g.,Agrium / CF Industries) with international cooperation again likely being significant. However, even where international cooperation was an important component of the Bureau’s review, the divestitures obtained have frequently had Canada-specific elements, demonstrating that Canadian remedies are not merely an exact re-iteration of any foreign remedies.

Prior to the March 2009 amendments, merging parties had the ability to force the Commissioner to litigate to prevent closing on the expiry of the 42 day period after pre-notification filings were submitted. Although such litigation was, in practice, a rare occurrence because parties wanted to obtain positive clearance from the Commissioner, the bargaining dynamic that existed between the Commissioner and the parties was nevertheless generally more favourable to the parties than is the case today. More particularly, for transactions the review of which lasted longer than 42 days, which captures the significant majority of mergers that are substantively complicated from a competition law perspective, the Commissioner had an incentive to negotiate to avoid litigation. 

Under the new regime, this dynamic is often not present, as the Commissioner’s review of substantively complicated transactions occurs largely, or even exclusively, during a period in which the parties are not able to close. Parties can only put themselves in a legal position to close by complying with a SIR (or the terms of a timing agreement), but the very act of complying with a SIR is a time-consuming, resource-intensive process, and results in the parties providing, under oath, the internal data and documents that the Commissioner would use to support a merger challenge. Parties can and do agree to pull and refile their merger filing such that the waiting period recommences and the Commissioner need not issue a SIR to prevent closing.

While information regarding the timing of parties’ compliance with SIRs (or timing agreements) for specific transactions is not publicly available, it is very likely that at least some of the recent divestitures contained in consent agreements obtained by the Commissioner were negotiated in situations where the parties were not in a legal position to close. This was never or virtually never the case under the old regime, where the parties would often be in a legal position to close during the negotiation of any remedy. One of the implications of the new regime for merging businesses where there is some competitive overlap is that if a relatively short interim period between signing and closing is contemplated, the parties will very likely arrive at their intended closing date in a situation where they require positive clearance from the Commissioner to close, meaning that their bargaining position in negotiating a consent agreement may be relatively weak.

Finally, it is notable that although the Commissioner has obtained merger remedies at an unprecedented rate since the implementation of the March 2009 amendments, the Commissioner has only brought a single formal merger challenge at the Competition Tribunal, continuing a trend that dates back a number of years.   Furthermore, the merger in question was “non-notifiable,” in the sense that it was not large enough to trigger a mandatory Competition Act filing. The new SIR process and the enhanced leverage of the Commissioner would therefore have been an irrelevant consideration in the review of this merger. 

It is unclear whether there will be much in the way of contested merger proceedings in the future. On the one hand, the enhanced information gathering powers of the Commissioner, which operate to extend the waiting period, suggest that the Commissioner may be in a better position than before to prepare for a contested merger challenge. On the other hand, parties to a transaction, recognizing the enhanced power of the Commissioner, may be more inclined to arrive at a negotiated settlement by way of consent agreement relating to the problematic portions of the transaction, in order to permit a relatively expeditious closing. It may take several years before the impact of the March 2009 amendments on merger investigation and litigation in Canada is fully understood. It would seem, however, that consent agreements will continue to occupy a significant position in the Canadian competition law landscape at least so long as the current strategic merger activity continues and that, consequently, case law under the Competition Act’s substantive merger review provisions will remain sparse.

Foreign Investment Review – Investment Canada Act

The ICA provides for the pre-closing review and Ministerial approval of certain investments in Canadian businesses, with such approval granted where the Minister determines that an investment is of “net benefit to Canada.” Prior to March 2009, the ICA did not contain any explicit “national security” review mechanism. We provide below a brief overview of Canada’s new “national security” review regime under the ICA. Certain other technical amendments to the ICAwere made in March 2009, but are not discussed in any detail herein. 

  • National Security - Overview

A national security review may be launched where the Government regards a foreign investment as potentially “injurious to national security”. If it concludes that there is a potential threat, the Government can prohibit or attach conditions to a foreign investment, whether an investment in an existing Canadian business or the establishment of a new Canadian business. If the investment is already completed, the Government’s powers include the ability to order the divestiture of a Canadian business. It is important to note that this mechanism for national security review is separate from the existing economic review process.

The national security amendments to the ICA raise a number of issues, including the following.

  • National Security is Undefined

The ICA does not define “national security”. The Government has not provided any meaningful guidance on the factors it will consider when determining whether there is a national security issue. The concern that national security could be interpreted expansively (beyond obvious defence-related concerns) is heightened by the large and varied group of governmental departments and agencies listed in the National Security Review of Investments Regulations (the National Security Regulations), including the Department of Canadian Heritage, the Department of Natural Resources, the Department of Transport, the Canada Revenue Agency, the Department of Public Works and Governmental Services and the Department of Finance, in addition to the more obvious agencies such as the Department of National Defence and the Canadian Security Intelligence Service.

  • Small Transactions and Other Investments are Subject to the New Law

Unlike the case in economic reviews under the ICA, the new national security review law applies to minority investments. Also, under the new law, the government may order a review if the business in question carries on any part of its operations in Canada and has any of: a place of operations in Canada; one or more individuals who are employed or self-employed in connection with the operations; or assets in Canada used in carrying on the operations. There is no minimum asset or transaction size threshold, with the result that a national security review is possible even with respect to small transactions.

  • No Process for Voluntary Pre-Clearance

The ICA does not provide a pre-clearance process for national security issues. However, in some cases the National Security Regulations provide for a statutory limitation on the Minister’s ability to act after a certain date. In some cases it may be possible to have the limitation period expire before closing. If this is not possible, there will be some (in most cases minimal) risk of a post-closing national security review.

  • State-Owned Enterprises (SOEs)

It is generally thought that the genesis of the national security law was the proposed acquisition of Canadian nickel miner Noranda Inc. by China Minmetals in 2004. Although that transaction did not proceed, it did generate debate about the role of national security considerations under the ICA.

In December 2007, the government issued guidelines on how it would apply the “net benefit to Canada” test to investments by SOEs that were being reviewed under the economic review provisions of the ICA (as opposed to the new national security law, which was not then in force). In addition to the factors that the Minister of Industry typically considers in deciding whether to approve reviewable investments, the SOE Guidelines indicate that the governance and commercial orientation of SOEs will be considered.

With respect to governance, the SOE Guidelines state that the SOE’s adherence to Canadian standards of corporate governance will be assessed, including any commitments to transparency and disclosure, independent directors, audit committees and equitable treatment of shareholders, as well as compliance with Canadian laws and practices. The Minister will also consider how and to what extent the investor is controlled by a state.

With respect to the commercial orientation, the SOE Guidelines state that the following will be relevant: (i) destinations of exports from Canada; (ii) whether processing will occur in Canada or elsewhere; (iii) the extent of participation of Canadians in Canadian and foreign operations; (iv) the support of on-going innovation, research and development; and (v) planned capital expenditures in Canada.

Finally, the SOE Guidelines outline the types of binding commitments or undertakings an SOE may be required to provide to pass the “net benefit” test. While many of these include commitments required by any foreign purchaser, of particular interest is the potential for a requirement to list the shares of the acquiring company or the target Canadian business on a Canadian stock exchange.

Mitigating Considerations

Despite the uncertainty generated by the introduction of the national security review process in Canada, foreign investors should in most cases not be overly concerned for a number of reasons.

  • Experience with National Security Reviews to Date

As at the date of writing, there has apparently only been a single national security notice (not a full review) since the new law came into force a year ago. Moreover, as at the date of writing, even under the “net benefit to Canada” test that is applicable to economic reviews, there have only been two non-cultural investments rejected in the quarter century since the ICA came into force (the ATK - MDA aerospace transaction, and the BHP Billiton – PotashCorp transaction, both described below).

  • Canada has an Open Economy

Canada’s economy has historically been open to foreign investment. In 2009 (not a particularly active year for global foreign investment), 22 transactions were approved by the Minister of Industry under the economic review provisions of the ICA,including three significant investments by SOEs: (i) China National Petroleum Corporation’s acquisition of control of Athabasca Oil Sands Corp, (ii) Korea National Oil Corporation’s acquisition of Harvest Energy Trust and (iii) Abu Dubai’s International Petroleum Investment Co’s acquisition of NOVA Chemicals Corporation. Also, China Investment Corporation’s acquisition of a 17% interest in Teck Resources Limited was successfully completed in 2009, and, in 2010, Sinopec’s acquisition of an interest in Syncrude received approval under theICA. To date, no SOE transactions have been formally rejected.

Investment Canada Act Developments in Recent Months

The most significant ICA development in recent months was the rejection of BHP Billiton’s proposed acquisition of Potash Corporation of Saskatchewan (PotashCorp) in November 2010. This rejection, combined with other foreign investment controversies, has drawn considerable attention to the ICA and has generated widespread debate within the Canadian foreign investment bar, corporate Canada, policymakers and academia as to the appropriate role of government in screening, imposing conditions on and approving foreign investment in Canada. Most recently, parliamentary hearings regarding further potential changes to the foreign investment review regime have been commenced. The outcome of such hearings, in terms of further amendments to theICA, is uncertain. A brief summary of the PotashCorp situation follows.

BHP’s hostile takeover bid for Saskatchewan’s PotashCorp, an iconic world-class producer of a key Canadian natural resource, attracted massive political and media attention from the moment of its launch in mid-August 2010.3

The Premier of the Province of Saskatchewan vigorously argued that the federal government should refuse the proposed bid, concerned among other things, about potentially significant negative tax consequences for the Province of Saskatchewan and the loss of a public company Canadian head office.

On November 3, 2010, the Minister issued a preliminary decision rejecting BHP’s bid on the basis that it failed to satisfy the “net benefit to Canada” test. Although the law provided BHP with a 30-day period within which further submissions could be made to try to change the Minister’s view, BHP apparently chose not to proceed, officially withdrawing its application on November 14, 2010. BHP issued a detailed press release following the failure of the bid, outlining numerous specific commitments it had been prepared to make.  Undertakings would apparently have included a five-year commitment to remain in a Canadian potash export group, significant spending on infrastructure, increased investment in BHP’s already planned Jansen mine (also located in Saskatchewan), commitments to forgo certain tax benefits and to apply for a listing on the Toronto Stock Exchange. Other proposed undertakings apparently related to employment increases, spending on community and education programs and an unprecedented US$250 million performance bond to ensure that the company fulfilled its undertakings.

Following the decision, some commentators noted suggestions by Minister of Agriculture Gerry Ritz that BHP’s bid had been refused because potash is a “strategic resource” for Canada. This is not an explicit factor for consideration under the ICA. However, other countries have, in the context of foreign investment review, taken measures to protect their most valuable resources or companies.4

The ICA certainly provides the Minister with significant discretion and the PotashCorp decision has led to calls for clarification of Canada’s foreign investment rules from businesspeople, investors and politicians across the political spectrum. Critics have cited a lack of transparency and a lack of predictability as factors affecting the efficacy of foreign investment review. While the current approach gives the Minister significant flexibility to assess proposed investments on a case-by-case basis, it is also true that perceived unpredictability might complicate the risk assessments undertaken by foreign acquirers and, conceivably, deter investment in Canada. Nevertheless, the PotashCorp decision had numerous unique features, including the opposition to the transaction from the Premier of Saskatchewan, suggesting that it would be incorrect to draw any broader conclusions regarding Canada’s approach to foreign investment from this apparently unique transaction.


[1] There had been no groundswell of support in Canada for the adoption of a US-style merger review process. The recommendation was included in the final June 2008 report of the Competition Policy Review Panel, a panel formed in July 2007 with a mandate to review Canada's competition and foreign investment policies, and make recommendations to the federal government for making Canada more globally competitive. This recommendation was somewhat surprising given that none of more than 100 written submissions to the panel called for the adoption of US-style process, and indeed such a recommendation seemed beyond the terms of reference of the panel. Furthermore, the recommendation was also contained in the final report of Brian Gover, following his review of the exercise of the Commissioner’s powers under section 11 of the Competition Act

[2] The final months of 2010 and first few months of 2011 were a relatively quieter period for the Competition Bureau in terms of merger remedies. Although numerous remedy sale processes were completed, these related to remedies that had been previously announced. Notable transactions cleared during this timeframe included Shaw / Canwest, BCE / CTVglobemedia and XM Canada / Sirius Canada. The Bureau did, however, bring a merger challenge in January, 2011 in respect of a closed merger.

[3] Stikeman Elliott LLP acted as counsel to PotashCorp.

[4] In fact, Australia itself has been known to protect key industries and, at the same time that BHP was making a bid for PotashCorp, Australian authorities were engaged in a detailed review of the takeover bid for the Australian Stock Exchange by Singapore Exchange Ltd. Indeed, the very existence of BHP and the other Australian mining supermajor, Rio Tinto, as Australian companies, is due, in no small part, to the existence of stringent Australian foreign investment rules that played a major role in previous transactions involving BHP and Rio Tinto. 

Reprinted with permission from The Canadian Legal Lexpert® Directory 2011
© Thomson Reuters Canada Limited

 

 

 

 

 

Local waste divestitures approved

Shawn Neylan

On October 5, 2010, the Competition Bureau announced that it has approved the divestiture of waste collection assets of BFI Canada Inc. in Calgary, Ottawa and Edmonton. The divestitures were announced as a remedy in relation to the merger of IESI-BFC Ltd. (BFI) and Waste Services Inc. on June 29, 2010. In each city, there was a different buyer, illustrating that in transactions involving smaller geographic markets, different buyers in each market may be acceptable. Divestitures in other cities are still required under the terms of the consent agreement.

Competition Bureau requires divestiture in Novartis / Alcon Transaction

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).

The registered consent agreement contemplates that Novartis will have an initial sale period within which to complete the divestiture of the products in question, failing which a divestiture trustee will be empowered to complete the divestiture.  It also contemplates that the relevant Miochol-E assets and associated licenses will be divested to Bausch & Lomb Incorporated, pursuant to an asset purchase agreement signed in July 2010.  The consent agreement does not contain an explicit “hold separate” obligation but does contain detailed asset preservation obligations, together with the appointment of a monitor.
The transaction had been announced on January 4, 2010, suggesting a relatively long review period by the Bureau.  The remedy is somewhat notable in that Novartis already owned an approximate 25% interest in Alcon, which it acquired in 2008.  It is not publicly known whether the Bureau reviewed the initial 2008 acquisition of the 25% interest, or how its analysis differed in respect of the 2010 transaction.
This transaction represents the fifth occasion to date in 2010 for which the Bureau has required a merger remedy (along with Ticketmaster/Live NationBFI Canada/Waste Services, Nufarm/AH Marks, and Teva/ratiopharm).

Competition Bureau reaches agreement in Teva/ratiopharm merger

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 NationBFI Canada/Waste Services, Nufarm/AH Marks, and Teva/ratiopharm).

Jeffrey Brown and Michael Kilby of Stikeman Elliott LLP were Canadian competition counsel to ratiopharm.

Post-Closing herbicide merger remedy

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.

Both the Bureau and the FTC press releases refer to extensive international cooperation between the Bureau, the FTC, UK and Australian competition authorities, including specific reference to close cooperation between the Bureau and FTC that resulted in a coordinated remedy addressing the Canadian and US markets.

The remedy is notable in that it was obtained in respect of a merger that had been consummated over two years ago.  The size of the AH Marks business at the time of the acquisition (a reported purchase price of approximately £75 million, and reported global annual revenues of approximately £62 million) was such that the transaction may not have triggered pre-merger notification requirements.  It is always important to assess the substantive competition issues raised by a transaction, even where the transaction does not trigger mandatory filings.

Commissioner obtains waste divestitures in BFI - WSI transaction

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.

Waste firm divests Alberta landfill

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.
 

Merger remedy in Danaher acquisition of MDS

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.

Ticketmaster and Live Nation agree to consent agreement to resolve Competition Bureau concerns

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.

Ticketmaster, a worldwide provider of ticketing services, and Live Nation, a promoter of live events globally, announced their intention to merge on February 10, 2009. Following a detailed review of the transaction, the Bureau concluded that the proposed merger would likely prevent competition substantially in respect of primary ticketing services for large live entertainment events in Canada. To address the Bureau's concerns and move forward with the proposed merger, Ticketmaster and Live Nation agreed to implement certain divestitures and comply with certain behavioural commitments, including principally:

  • Divestiture of Ticketmaster's subsidiary, Paciolan, Inc., which provides ticketing services to venues or other organizations, to a buyer approved by the Commissioner of Competition. Pending completion of the divestiture, the parties must hold Paciolan separate and apart from their other operations.
  • Licensing of Ticketmaster's primary ticketing software to Anschutz Entertainment Group, Inc. (AEG), a competing promoter of live events, and provision of private label ticketing services to AEG for a period of no more than 5 years. At AEG's option, AEG may acquire a non-exclusive, perpetual, fully paid-up licence to the Ticketmaster software used by Ticketmaster to sell primary tickets in Canada.
  • Non-retaliation, including anti-competitive bundling, in respect of any venue owner in Canada that chooses to use another company's primary ticketing services or another company's live event promotional services, for a period of 10 years after closing of the merger.

The divestitures and behavioural commitments in the consent agreement are substantially similar to those contained in the proposed U.S. Final Judgment addressing competition concerns in the United States. The consent agreement has been registered with, and is enforceable as an order of, the Competition Tribunal. Ticketmaster was represented in Canada by Stikeman Elliott LLP.

Competition Bureau Requires Divestitures by Ticketmaster

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.
 

Recent merger settlements in Canada

Susan M. Hutton

The Competition Bureau has settled a number of long-running merger reviews in recent months:

  • On November 4, 2009, the Competition Bureau announced that it had reached an agreement with Agrium Inc. to resolve competition concerns related to Agrium's proposed acquisition of CF Industries Holdings Inc. Under the terms of the Consent Agreement, if Agrium is successful in its bid, it will divest half of its nitrogen-based fertilizer production facility in Carseland, Alberta and will be required to supply additional product to Terra Industries, Inc., a new entrant into Western Canadian wholesale nitrogen fertilizer markets. 
  • On October 29, 2009, the Competition Bureau approved the acquisition of Schering-Plough by Merck, subject to Merck's divestiture of its interest in the animal health company, Merial, to its joint venture partner, Sanofi-Aventis, as well as the divestiture by Schering-Plough of its new anti-nausea and anti-vomiting product (used in the treatment of post-chemotherapy and post-operative side effects), Rolapitant, to Opko Health in both Canada and the United States.
     
  • On October 14, 2009, agreement was also reached with Pfizer Inc. and Wyeth as to the divestiture of several animal pharmaceutical and vaccine products to Boehringer Ingelheim Vetmedica, Inc., in both Canada and the United States. In Canada only, Pfizer also amended the terms of its existing arrangement with Paladin Labs Inc. governing the distribution and sale of Pfizer's human hormone replacement therapy product, Estring. (Members of the Stikeman Elliott competition group represented Wyeth in that transaction.)
     
  • Previously, on August 27, 2009, Ultramar Ltd. had been approved as the acquirer of terminal storage and distribution capacity required to be provided by Suncor Energy Inc. as part of a remedy addressing competition concerns raised by the Bureau over the merger of Suncor and Petro-Canada. The sale process for the 104 retail gas stations required to be divested in southern Ontario is still ongoing.

Bureau reaches Suncor/Petro-Can consent agreement

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:

  • sell 104 retail gas stations in southern Ontario;  
  • sell approximately 1.1 billion litres of terminal storage and distribution capacity, annually, to be used for wholesale distribution during a 10-year period at their terminals located in the Greater Toronto Area; and
  • supply 98 million litres of gasoline each year for a 10 year period, to independent gasoline marketers.

Both the Bureau and the parties to the merger have expressed satisfaction with the agreement. Melanie Aitken, Interim Commissioner of Competition commented that "requiring the companies to sell retail outlets will lead to increased competition by independent retailers who can expand their market presence [and] .the parties' commitment to sell terminal space in the Greater Toronto Area is important to promoting a competitive dynamic in that market." Rick George, the current president and CEO of Suncor, who will assume the same role in the merged company, said that "we are satisfied that the resulting terms will preserve the expected benefits of the merger and maintain a competitive refined products market in Ontario."

Insufficient efficiencies: Competition Bureau forces divestiture in Newfoundland propane acquisition

Kim D.G. Alexander-Cook
 

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.

Timeline and Remedy

In December 2007, the Bureau concluded that the transaction would likely prevent or lessen competition substantially in the retail supply of propane in Central and Western Newfoundland for commercial and industrial use. A consent agreement was registered with the Competition Tribunal in May, 2008, requiring Superior to divest two bulk propane storage tanks and a tank truck in the relevant markets, and to permit Irving customers to terminate certain supply agreements without penalty1. Superior signed an agreement to sell the divested assets to North Atlantic Petroleum (NAP) on October 2, and the divestiture was completed on January 23, 2009.

Bureau's Analysis
Markets

The Bureau's concerns were confined to the effects on the retail sale of propane for commercial and industrial use (about 80% of total propane use in Newfoundland). The Bureau was not concerned about propane for home or motor fuel use because of provincial regulation of retail prices for these uses. The Bureau examined two relevant geographic markets: Western and Central Newfoundland.

Competitive Effects

The only remaining competitor in Central Newfoundland was in fact NAP, which although active, had no propane storage assets in the market. The merging parties were the only competitors in Western Newfoundland. The Bureau found that new competitive entry into either market was unlikely within its two-year window for analysis.

The Bureau concluded that Superior's post-merger market position would have allowed a significant unilateral exercise of market power in both markets. In Central Newfoundland, the Bureau also found the potential for coordinated effects due to the presence of a number of facilitating factors, including a degree of price transparency, frequent purchases by many small users, and multi-market competition between competitors. While the Backgrounder acknowledges that these factors continue to be present with the required sale of assets to NAP, it takes the view that coordination is now materially less likely.

The Backgrounder indicates that NAP's purchase of the divested assets represented an opportunity to significantly increase its presence in Central Newfoundland and to enter the business in Western Newfoundland. The Backgrounder does not address why, in view of NAP's significant upstream position (NAP has the only oil refinery in the province) and its retail propane operations in Eastern and Central Newfoundland, NAP would have been unwilling to enter the business in Western Newfoundland, absent acquisition of the divested assets.

Efficiencies

Superior and Irving provided the Bureau with detailed efficiencies claims that were considered by the Bureau and external experts during the review of the transaction. Although the Bureau agreed that efficiency gains would likely arise from the transaction, it concluded that such gains would not likely be sufficient to offset the effects of any substantial lessening or prevention of competition within the meaning of section 96 of the Competition Act.


 

1The public version of the Consent Agreement is available here.

Canada Pipe case settled, abuse of dominance provision remains unresolved

Kevin Rushton

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.

The SDP is a loyalty program under which Canada Pipe offers rebates and discounts to distributors that purchase all of their requirements for cast-iron pipe, cast-iron fittings and mechanical joint couplings (collectively known as cast-iron "drain, waste and vent" or DWV products) exclusively from Canada Pipe. Under the terms of the consent agreement, Canada Pipe will implement and offer a modified rebate program to distributors in Canada as an alternative to the SDP, which Canada Pipe may continue to offer. The modified rebate program will provide rebates and multiplier discounts to distributors meeting a minimum purchase requirement, but will not be conditional on exclusive purchases of DWV products from Canada Pipe. Significantly, total rebates and discounts under the SDP (or any other rebate program) are not to exceed those available under the modified rebate program, although Canada Pipe retains the right to offer additional price concessions or discounts "on an as-needed basis in order to match what Canada Pipe believes to be legitimate competing offers." The consent agreement therefore effectively nullifies Canada Pipe's SDP during the five-year term of the agreement.

The Bureau began its challenge of the SDP in 2002, with an application to the Tribunal seeking an order for its elimination as a contravention of the Act's civil exclusive dealing (s. 77) and abuse of dominance (s. 79) provisions. The Tribunal rejected the Commissioner's application in February 2005, finding that while Canada Pipe was dominant in relevant markets, its conduct did not amount to an "anti-competitive act" and did not prevent or lessen competition substantially.

On appeal, the Federal Court of Appeal ordered a re-determination of the case in June 2006, finding that the Tribunal erred by applying the incorrect legal tests under s. 79. With respect to the test for a "substantial lessening or prevention of competition," rather than focusing on whether a substantial level of competition continued to exist (evidenced by new entry and switching by distributors), the Court held that the Tribunal should have asked whether relevant markets would have been substantially more competitive "but for" the impugned practice of anti-competitive acts. The Court also held that the Tribunal erred in requiring a link between the impugned conduct and a negative impact on competition for a "practice of anti-competitive acts" to exist. Instead, the Court held that an anti-competitive act is identified by having as its purpose (based on the overall character of the act, including its reasonably foreseeable or expected effects, any business justification and evidence of subjective intent) an intended predatory, exclusionary or disciplinary effect on a competitor. Effects of the practice on competition are examined in determining the existence of a substantial lessening of competition. Finally, the Court held that for a valid business justification to exist, an impugned practice must have a credible efficiency or pro-competitive explanation; enhanced consumer welfare is on its own being insufficient.

Prior to filing of the consent agreement, the Tribunal was scheduled to hold a re-determination hearing on the case in February 2008. The Commissioner, in her arguments on the re-determination, raised several interesting issues concerning the proper legal approach under s. 79, the resolution of which has unfortunately been pre-empted by the settlement.

In particular, the Commissioner argued in her factum that, with respect to anti-competitive acts, "[t]he evidence of [Canada Pipe's] subjective intent unequivocally establishes that the SDP is an act that has its purpose an intended negative exclusionary effect on competitors and therefore, is an anti-competitive act within the meaning of paragraph 79(1)(b) of the Act."1 The Commissioner argued that "[i]n light of the evidence regarding the subjective intent of [Canada Pipe], it is not necessary to consider the reasonably foreseeable consequences of the SDP."2 Contrary to the Commissioner's submissions, however, the Federal Court of Appeal had held that "evidence of subjective intent is neither required nor determinative" in establishing an anti-competitive act, but rather is one of the "[r]elevant factors to be weighed to determine [the] overarching 'purpose', or 'overall character' of the conduct", along with the reasonably foreseeable or expected objective effects of the act and any business justification.3

With respect to the test for establishing a substantial prevention or lessening of competition, the Commissioner cited a prior decision of the Tribunal in arguing that "[w]here a respondent has significant market power, even a small effect on competition qualifies as substantial."4 The Federal Court of Appeal did not comment on this issue in its decision. However, as Canada Pipe argues in response, "to suggest that a de minimis impact upon competitors would be sufficient to meet the "substantiality" threshold in section 79(1)(c) would be to read this threshold out in all cases where it has been established that a firm has market power. Given that market power is a precondition under section 79(1)(a), this would effectively mean the elimination of the substantiality component under section 79(1)(c) in all abuse of dominance cases."5

Clearly, despite the Federal Court's decision in the case, significant issues remain to be resolved with respect to the enforcement of Canada's laws regarding abuse of a dominant position. With the settlement of the case, however, these issues remain to be heard another day.


1Commissioner of Competition v. Canada Pipe Company Ltd., CT-2002-006, Memorandum of Argument of the Commissioner of Competition (Re-determination Proceeding), at para. 90 ("Commissioner's Factum").
2Id., at para. 91.
3Commissioner of Competition v. Canada Pipe Company Ltd., 2006 FCA 233, at paras. 73 and 67..
4Commissioner's Factum, supra, at para. 167. See also paras. 18, 161 and 170.
5Commissioner of Competition v. Canada Pipe Company Ltd., CT-2002-006, Memorandum of Argument of Canada Pipe Company Ltd. (Re-determination Proceeding), at para. 235.

Grain handlers make divestitures to maintain industry competitiveness

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:

  • AU has finally sold off its Port of Vancouver grain-handling terminal (the UGG Terminal) to Alliance Grain Terminal Ltd., pursuant to a consent agreement registered at the Tribunal by UGG on October 17, 2002 (the 2002 Consent Agreement). The divestiture had been ordered in response to UGG's 2001 acquisition of ACL.
  • SWP has sold off nine inland grain elevators and a Port of Vancouver terminal elevator to Cargill Ltd. (Cargill). The sale was made pursuant to a consent agreement registered on March 28, 2007 (the 2007 Consent Agreement). The Bureau had determined that even with the divestiture of the UGG Terminal, noted above, the SWP/AU merger would have led to the post-transaction entity controlling 89% of licensed grain storage capacity at the Port of Vancouver. It would also have eliminated competition between the two largest players in the Canadian West Coast Port Terminal grain-handling services market.
  • Under the terms of the same consent agreement, SWP has also ended its Vancouver-based joint venture (Pacific Gateway Terminal Ltd.) with Winnipeg-based James Richardson International (JRI), which had been under challenge by Commissioner of Competition Sheridan Scott (the Commissioner).
  • JRI itself entered into a consent agreement pursuant to which it will divest two Manitoba-based grain elevators, stemming from its acquisition from SWP of some of AU's inland grain elevators.

The UGG Terminal divestiture process was anything but swift. Following the UGG/ACL merger, the resultant entity, AU, was required to divest primary grain elevators in Alberta and Manitoba, as well as a terminal at the Port of Vancouver. Under the terms of the 2002 Consent Agreement, AU was required to divest six primary grain elevators in the two Prairie provinces in order to assuage competition concerns in certain local markets. If AU was unable to complete the divestiture within an allotted confidential time period, the facilities were to be sold off by a trustee. Five of the six were sold on time, but AU was unable to complete the sixth sale despite numerous deadline extensions granted by the Bureau. The trustee was ultimately employed, and the sixth grain elevator eventually sold.

Similar difficulties were encountered with the Vancouver terminal. Under the 2002 Consent Agreement, AU was given until October 31, 2004 to dispose of one of its two terminals at the port, ultimately choosing the UGG Terminal. However, AU was unable to complete a sale before the deadline, and no fewer than ten extensions were granted by the Bureau in anticipation of an imminent sale.

The Bureau's patience was at an end in August 2005, and it would grant no further extensions. AU applied to the Competition Tribunal requesting that the agreement be rescinded under s. 106 of the Competition Act, due to changed circumstances in light of the amount of uncommitted grain shipped to the Port of Vancouver by independent grain companies. In May of 2006, following a Tribunal decision not to adjourn AU's hearing date, AU officially withdrew its application, and the divestiture was eventually completed over a year later, against the background of the SWP/AU merger.

The structure of the 2007 Consent Agreement appears to be broadly in line with the Information Bulletin on Merger Remedies in Canada issued by the Bureau in September 2006, and designed to avoid further long delays. The 2007 Consent Agreement gave SWP ninety days following its acquisition of AU to make the relevant divestitures to Cargill, laying out a "hold separate" regime over the interim period governing those assets and the employees who worked with them. If the sale could not be completed on time, a divestiture trustee would have been appointed to sell off a different set of assets, although this list would be kept confidential until four months after the trustee was empowered to make the sale. The trustee could be appointed as early as seventy-five days into SWP's sale process.

In the event that the trustee was unable to complete the sale within four months (or after any extensions expired), or even if the Commissioner did not by then feel that a sale was imminent, the agreement empowered her to apply to the Tribunal for an order to facilitate a sale of the "crown jewels," presumably in an attempt to sweeten the package for any prospective buyers. The Commissioner could also request a Tribunal order that SWP divest its entire ownership interest in AU.

Canada Releases Draft Merger Remedies Bulletin for Comment

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.

Cineplex Galaxy agrees to divestiture of 35 theatres in 17 cities to complete its merger with Famous Players

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.

Competition Tribunal Adjusts to a ''Change in Circumstances''

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.

Section 106 of the Act allows a consent agreement to be rescinded where "the circumstances that led to the making of the agreement or order have changed and, in the circumstances that exist at the time the application is made, the agreement or order would not have been made or would have been ineffective in achieving its intended purpose." In its submissions to the Tribunal, RONA argued that the consent agreement should be rescinded in light of Home Depot's subsequently confirmed intention to expand into Sherbrooke. The Commissioner opposed the application to rescind the consent agreement.

According to RONA, Sherbrooke was unique among the geographic markets considered by the Competition Bureau (the Bureau) in its 2003 examination of the RONA-Kingfisher transaction, insofar as it was the only market where Home Depot was not present as a competitor. Had it been present, RONA argued, Sherbrooke would have been indistinguishable from other geographic markets, in which case it would not have agreed to divest a store in that market.

The Commissioner submitted that RONA's application should be rejected on the basis that RONA had expected Home Depot to expand into Sherbrooke at some point, with the result that it could not now raise its intended entry as a material change of circumstances. The Commissioner also alleged that RONA had engaged in an abuse of process by deliberately trying to slow the divestiture process, contrary to the spirit of the consent agreement.

Upon evaluating the evidence, the Tribunal accepted RONA's contention that there had indeed been a change of circumstance within the meaning of s. 106 of the Act. According to the Tribunal, in September 2003 Home Depot had had no intention of expanding its operations into Sherbrooke. Therefore, Home Depot's subsequent decision to enter the Sherbrooke market presented a set of circumstances very different from those that led to the registering of the consent agreement.

The Tribunal rejected the Commissioner's argument that RONA could claim no change in circumstances since it had expected that Home Depot would eventually expand into Sherbrooke. The Tribunal distinguished jurisprudence on this point on the basis that the underlying rationale of such jurisprudence has been to prevent parties from failing to reveal facts and then subsequently arguing that they give rise to "new circumstances." The circumstances in this case, the Tribunal pointed out, were very different. Far from trying to hide its view that Home Depot would eventually expand into Sherbrooke, the Tribunal noted that RONA had tried unsuccessfully to convince the Bureau of this fact both before and after signing the consent agreement.

The Tribunal went even further, criticizing the Commissioner's decision to insist that the divestiture take place even after Home Depot's intention to expand into Sherbrooke became clear. The Tribunal went so far as to suggest that the Commissioner has a duty to stay attuned to the changing circumstances regarding the consent agreement, and should have agreed to revise the consent agreement once it had proof of Home Depot's expansion into Sherbrooke. The force and effect of a consent agreement, the Tribunal said, goes beyond merely carrying out its terms, to include ensuring that implementation of the consent agreement continues to make sense in the circumstances.

The Tribunal also rejected the Commissioner's allegation that RONA had engaged in an abuse of process by unnecessarily frustrating the divestiture process. According to the Tribunal, none of RONA's actions throughout the proceedings constituted an abuse of process. Rather, RONA made every effort to divest the Sherbrooke Réno Dépôt store to a buyer who met the criteria outlined in the consent agreement (i.e., "to a buyer wishing to operate the business principally for the retail sale of home improvement products"). Given a limited pool of potential buyers for big-box format stores of this type, RONA was unsuccessful in its attempt to divest the store within the time limits prescribed by the consent agreement, with the result that, as permitted by the consent agreement, the Commissioner appointed a trustee to effect the divestiture.

The Commissioner also alleged that RONA had engaged in an abuse of process by availing itself of certain rights under the consent agreement. However, the Tribunal rejected this allegation as well. The Tribunal noted that the consent agreement was negotiated and signed by both parties, each of whom was represented by competent legal counsel. As such, it could not be an abuse of process for RONA to exercise its rights under the consent agreement (including the right to object to the trustee's divestiture of the Sherbrooke store if the divestiture did not comply with the provisions of the consent agreement).

Stikeman Elliott LLP acted as counsel to Kingfisher in RONA's original 2003 acquisition of the Réno Dépôt and The Building Box stores.

RONA Asks Competition Tribunal to Rescind Consent Agreement

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.

The Consent Agreement provided that RONA would have a finite period of time to divest the store, failing which the divestiture would be placed in the hands of a trustee. RONA having been unable to sell the store, a divestiture trustee was appointed. Although at first unsuccessful in finding a buyer, the trustee eventually entered into an agreement with a prospective buyer. RONA, however, exercised certain rights under the Consent Agreement to object to the sale negotiated by the trustee, thereby requiring that the divestiture be approved by the Tribunal. RONA also applied to the Tribunal for rescission of the Consent Agreement, which if successful would free it of the obligation to divest the Sherbrooke store.

RONA's application was made pursuant to s. 106, which allows for rescission of a consent agreement in certain circumstances, including where "the circumstances that led to the making of the agreement . have changed and, in the circumstances that exist at the time the application is made, the agreement . would not have been made or would have been ineffective in achieving its intended purpose." In RONA's submission, substantial evidence that Home Depot intends to open a big-box home improvement store in Sherbrooke constitutes such a material change of circumstances. Sherbrooke, RONA argues, was unique among the geographic markets examined by the Competition Bureau in its 2003 examination of the RONA-Kingfisher transaction, insofar as it was the only market where Home Depot was not present as a competitor. Had it been present, RONA submits that Sherbrooke would have been indistinguishable from other geographic markets, in which case it would not have agreed to divest the RONA store in that market.

As the filing was made without the consent of the Commissioner, it seems likely that the Commissioner will oppose RONA's application.

Stikeman Elliott LLP acted as counsel to Kingfisher in RONA's original 2003 acquisition of the Réno Dépôt and The Building Box stores.

Tribunal dismisses application from Canadian Waste Services Holdings to change divestiture assets

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.

Forestry merger approved with divestiture of saw mills and certain timber harvesting rights

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

Tribunal Denies CWS Application

On June 28, 2004, the Competition Tribunal denied an application by Canadian Waste Services Inc. (CWS) (Now Waste Management of Canada Corporation) to rescind an October 2001 order under section 92 (mergers) requiring the divestiture of the Ridge landfill in Chatham, Ontario. In May 2003, CWS applied to the Tribunal to set aside the divestiture order under s. 106 of the Competition Act on the basis that the circumstances that led to the making of the order had changed, and that in the present circumstances, the Tribunal would not have made the order. The Tribunal's decision is currently under appeal. Although the Tribunal's recent decision terminated the July 10, 2003 stay of its order to divest the Ridge landfill, on August 6, 2004, the Federal Court of Appeal granted a stay of the divestiture order pending appeal of the Tribunal's recent s. 106 decision. The appeal is scheduled to be heard on November 4, 2004.

Canfor agrees to divestiture of sawmill in British Columbia

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.

Pfizer Inc. agrees to divestitures of certain assets to complete its acquisition of Pharmacia Corporation

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.