Canadian Merger Control Thresholds for 2017: Competition Act and Investment Canada Act increases

Susan M. Hutton

Both the Competition Act and the Investment Canada Act thresholds for review of acquisitions involving Canadian businesses are expected to increase in 2017. The “size of target” threshold for Competition Act notification, if adjusted pursuant to the formula prescribed in the Act, will increase very slightly to C$88 million (from C$87 million in 2016), although this increase has yet to be confirmed by the Minister and is subject to his discretion.

The Canadian government has also announced that the threshold for review under the Investment Canada Act applicable to direct acquisitions by state owned or influenced WTO investors will increase to C$379 million for transactions closing in the remainder of 2017 (from C$375 million in 2016), based on the book value of assets. Other ICA thresholds remain unchanged at this time, although the government announced in the fall that the review threshold for private WTO investors ‒ based on enterprise value of the Canadian business ‒ will increase in April to C$1 billion rather than C$800 million as previously scheduled.

Competition Act:

The Competition Bureau must generally be given advance notice of proposed transactions under the merger notification provisions of the Competition Act, when the “size of the target” exceeds the specified threshold, and when the combined Canadian assets or revenues “in, from or into” Canada of the parties together with their respective affiliates (the “size of parties” test) exceeds C$400 million. Transactions involving Canadian subsidiaries, as well as the direct acquisition of Canadian businesses or assets, and acquisitions of interests of as little as 20% (for public companies) or 35% (for private companies and interests in non-corporate business combinations) can trigger Competition Act merger notifications in Canada.

The “size of target” threshold for merger notification is based on either the book value of assets in Canada of the target (or in the case of asset acquisitions, 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 Act provides an amending formula to keep the target size indexed for inflation, but the Minister has the discretion not to index the threshold in any given year, and has exercised that right in the past. If implemented, however, the application of that formula would see the threshold increased to C$88 million for transactions closing in 2016 (or until a further such adjustment).

Investment Canada Act:

The threshold for advance review and Ministerial approval of certain direct foreign acquisitions of control of Canadian businesses under the Investment Canada Act is subject to annual indexing for inflation. The Investment Review Division of the Department of Innovation, Science and Economic Development (ISED, formerly Industry Canada) has announced that the amount will increase from C$375 million to C$379 million for 2017, based on the book value of the Canadian business, for direct acquisitions of control of non-cultural Canadian businesses by WTO investors (or from non-Canadian WTO investors), where the investor is a state-owned enterprise (SOE). The Investment Canada Act defines state-owned enterprises very broadly, and includes entities that are merely influenced by a foreign state.

The threshold for review of direct acquisitions of control of non-cultural Canadian businesses by WTO investors who are not SOEs is currently C$600 million based on the “enterprise value” of the Canadian business. This threshold is set to increase to C$800 million on April 24, 2017, but as noted above the government has said it will increase the threshold to C$1 billion in April (two years earlier than scheduled).  The old “book value” threshold continues to apply to SOE investors from WTO members only, in respect of non-cultural businesses, as outlined above.

Indirect acquisitions of control of non-cultural Canadian businesses by WTO investors (or (or from non-Canadian WTO-sellers), as a consequence of the acquisition of control of their non-Canadian parents, are not subject to review, regardless of the size of the assets of the Canadian business. This exemption applies to SOE investors as well.  All direct and indirect acquisitions of control of a Canadian business remain subject to notification under the Act, even if they are not subject to review.

Direct acquisitions of control of Canadian businesses with cultural activities, and direct acquisitions of control of non-cultural Canadian businesses where neither the sellers nor purchasers are from WTO-member states, are still subject to a review threshold of C$5 million based on the book value of the Canadian business. Indirect acquisitions of control of cultural businesses are still subject to review if the book value of the Canadian business exceeds C$50 million, as are indirect acquisitions of control by/from non-WTO investors.

For more information please contact a member of the Stikeman Elliott LLP Competition and Foreign Investment Group.

Industry Canada issues long-awaited revised draft Investment Canada Regulations

Ashley Weber and Bessie Qu -

On June 1, 2012, Industry Canada published long-awaited draft amendments to the Investment Canada Regulations. This is the Canadian government's second attempt to implement amendments to the Investment Canada Act passed in March 2009, which raised the review threshold for WTO investors and introduced a new metric threshold for valuing Canadian businesses based on "enterprise value". The amendments also introduce additional notification disclosure requirements that, if implemented, will significantly increase the burden on foreign investors for what has historically been an otherwise straight-forward, administrative post-closing filing.

The switch to "enterprise value" was ostensibly designed to better capture the value of a business as a going concern. However, as discussed in our previous post on May 28, devising a workable definition of "enterprise value" proved more difficult than anticipated when the legislation was amended in 2009. In response, the new draft Regulations establish a more rigorous methodology for calculating enterprise value, addressing some of the concerns raised by the Canadian Bar Association in response to the 2009 amendments. The recommendations that were adopted include:

  • valuing unlisted securities based on a good faith determination of their market value as opposed to the value of listed securities because the economic rights attached to unlisted securities may not be the same as those attached to listed securities;
  • using “total acquisition value” instead of book value of assets for acquisitions of private companies and asset acquisitions so investments are given equal treatment regardless of the way they are structured;
  • defining "trading period" with reference to the implementation of the investment to provide investors more certainty in assessing whether or not their investments are reviewable; and
  • specifying a source for currency conversions.

The new proposed Regulations further emphasize the different thresholds applicable to WTO and non-WTO investors. While the review threshold for acquisitions by WTO investors will gradually be increased to $1 billion CAD, the threshold for acquisitions by non-WTO investors and acquisitions of cultural businesses will continue to be based on the book value of assets, the threshold for which will be indexed annually, to account for inflation.

Moreover, as compared to book value, which is a known and objective quantity, “enterprise value” based on a good faith determination of value is inherently subjective and introduces considerable uncertainty into the review threshold analysis.

The government has also proposed changes to the notification disclosure requirements, which are significantly more burdensome than the existing framework, and as a result, seem inconsistent with the mandate of narrowing the scope of the ICA. They include the disclosure of:

  • the identity of the investor's directors, five highest-paid officers or any security holders with a 10% or greater stake in the investor's company;
  • date of birth of the individuals mentioned above;
  • the nature and extent of ownership of a foreign state;
  • the purchase agreement or a description of the terms and conditions of the transaction;
  • source of funding for the investment; and
  • the business activities carried on by the Canadian business, including the North American Industry Classification System (NAICS) codes of the products or services offered.

It is clear that the Canadian government, in drafting the notification disclosure requirements, borrowed from the disclosure obligations found in the Committee on Foreign Investments in the United States (CFIUS) review process. While the proposed Canadian notification requirements are by no means as comprehensive as those required under CFIUS, CFIUS applies only to investments that have potential implications for national security, and the United States does not otherwise have any notification requirements for foreign investments in general. The Canadian government has introduced more rigorous notification requirements, but has not put any limitation on the types of transactions that will be subject to this more onerous obligation.

Therefore, while these amendments seek to clarify “enterprise value”, in the same breath, they also increase the potential administrative and compliance costs for the majority of transactions that are below the review thresholds, and do not raise any concerns for Canada. If implemented, these disclosure requirements could in fact have the perverse effect of being bad for business in Canada. 

There is no clear timeline as to when the regulations will come into force.

Competition Bureau conducts performance review of its mergers branch

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:

New Service Standards for Merger Review

Interpretation Guidelines

In addition to these customized service standards and interpretation instruments, the Bureau has released more general guidelines outlining its merger review process including the Merger Enforcement Guidelines, a Mergers Remedy Study, and Merger Review Process Guidelines.

Finally, as part of its effort to enhance communication and transparency in the process of merger review, the Bureau has committed, where possible, to publicly communicate the results of certain merger reviews through the issuance of Position Statements that briefly describe the Bureau’s analysis of a particular transaction. The following position statements have been published by the Bureau since the release of the 2010 Report:

The Bureau’s transparency initiative also includes the publication of a Merger Register used to disclose completed mergers on a monthly basis—including those that have not been made public. The Bureau’s Merger Register is the most controversial of its transparency initiatives, as some critics have argued that it will lead to the disclosure of confidential commercial information which has traditionally been afforded protection under section 29 of the Competition Act.   

Bureau Workload and Resources

The Bureau’s caseload in the FY 2010-11 increased slightly since FY 2009-10 from 216 matters to 236. Complete statistics for FY 2011-12 were not available at the time of the Report’s publication.

As noted in its 2010 Report, the Bureau’s workload and resources have continued to be strained by an influx of highly complex transactions that have raised competition concerns.  Examples of highly complex reviews since the 2010 Report include:

  • BHP’s hostile bid to acquire Potash Corp. of Saskatchewan which was ultimately blocked by the Minister of Industry under the Investment Canada Act 
  • London Stock Exchange’s proposed merger with the Toronto Stock Exchange (“TMX”) which was unsuccessful due to a competing bid to acquire the TMX by Maple Group
  • Google’s acquisition of Motorola which involved the competitive effects of patents in the wireless industry
  • BCE and Rogers’ proposed acquisition of Maple Leaf Sports Entertainment which the Bureau is currently reviewing

Since the 2010 Report, the Bureau has issued 13 SIRs and four consent agreements have been registered with the Competition Tribunal.

In litigation before the Competition Tribunal, the Bureau has been very active on the front of unresolved merger matters. In January, 2011 it challenged CCS Corp’s acquisition of Complete Environmental Inc. which was the owner of a proposed hazardous waste landfill in British Columbia. This application represented the Bureau’s first challenge of a merger since 2005. In June, 2011 the Bureau filed an application with the Tribunal seeking to prohibit a proposed joint venture between Air Canada and United Continental Holdings Inc.

Non-Notifiable Transactions

The 2009 amendments to the Competition Act raised the threshold for notifiable transactions from $ 50 million to $ 70 million. Pursuant to an annual indexing formula set out in the Act, the threshold has now increased to $ 77 million. The practical effect of these revisions is that fewer transactions are now subject to mandatory notification, which in the Bureau’s view potentially increases the likelihood of non-notifiable mergers raising substantive competition issues.

Accordingly, the Bureau has embarked on a new initiative to actively monitor transactions in the Canadian marketplace. This monitoring involves scanning various media sources and mergers acquisition databases, as well as reviewing complaints from relevant stakeholders in the marketplace.

While year-to-year fluctuations exist within each notification subset (e.g. pre-merger notifications, ARCs, pre-merger notifications and ARCs, and other) the Bureau found that the proportional distribution of merger reviews by matter type has remained relatively consistent for an extended period of time.

Complexity Designations

The data compiled in the Report supports the Bureau’s view that its mergers workload is becoming increasingly complex. The table below, reproduced from the Bureau’s Report, indicates that over the three quarters of FY 2011-2012 the percentage of matters designated as ‘complex’ increased by approximately 7% over the previous fiscal year:

Since the 2010 Report, the Bureau has found that the average time required to review a non-complex matter increased by approximately 1.3 days, though the average time required to a review complex matter decreased by approximately 7 days which follows from the implementation of a considerably shorter service standard for complex reviews, introduced through the Merger Fee Policy and revised Merger Handbook in November, 2010.  The Report concludes that the Bureau has been able to meet the service standard in more than 90% of its reviews, regardless of complexity.

Competition Bureau releases additional Pre-Merger Interpretation Guideline for consultation

Susan M. Hutton & Kim Lawton -

Competition Bureau (the Bureau) has published a draft new Pre-Merger Interpretation Guideline for public consultation (Guideline #15), providing details as to how the Bureau calculates the value of “assets in Canada” and “gross revenues from sales” for purposes of the merger notification thresholds.  It will be open for comment from interested parties until June 13, 2012.

The purpose of the guideline is to assist parties and their counsel in interpreting and applying the provisions of theCompetition Act (the Act) relating to notifiable transactions. This guideline sets out the general approach taken by the Bureau and may assist businesses in determining whether the parties-size and transaction-size thresholds under sections 109 and 110 of the Act are exceeded.

As previously covered on this blog, on March 23, 2012 the Bureau announced the publication of two other new Pre-Merger Notification Interpretation Guidelines for public consultation. Those publications were Guideline #12: "Requirement to Submit a New Pre-Merger Notification and/or ARC Request Where a Proposed Transaction is Subsequently Amended" and Guideline #14: "Duplication Arising From Transactions Between Affiliates".

What's in Guideline #15?
Guideline #15  focuses on three key areas of inquiry:

  1. what is an asset "in" Canada?;
  2.  what are gross revenues from sales “in, from or into” Canada; and
  3. what revenues are considered to be “generated from those assets”?

The Bureau notes that the audited financial statements are the starting point for analysis, but cautions that "it is incumbent on parties to look beyond these segmented results to ensure that threshold calculations are consistent with the requirements of the Act and the Notifiable Transactions Regulations."

(1) Assets “In” Canada
Unless an exception applies, all assets on the audited financial statements of a Canadian entity (e.g., incorporated in Canada or formed pursuant to a Canadian statute) are assets “in” Canada. For tangible assets, the determination typically turns on where the asset is physically located. For an intangible asset (e.g., intellectual property rights), location is usually determined by the statute conferring the legal rights and privileges associated with the asset. Similarly, the location of a financial asset is usually determined by the statute conferring the legal rights and privileges associated with that asset.

(2) Gross Revenues From Sales “In, From or Into” Canada
Guideline #15 notes that merging parties should consider whether the audited financial statements provide a reasonable approximation of the value of revenues “in”, “from” and/or “into” Canada before relying on them. For example, some financial statements reflect both sales “in” Canada and sales “into” Canada, but exclude sales “from” Canada. [Author’s note: this reflects the European idea of turnover.]. Therefore, the Bureau states, it may be necessary to consult working papers or other records to determine the total value of all three categories of sales. Since only sales “in or from Canada generated by” the assets in Canada are relevant to the “size of target” threshold, whereas sales “in, from or into” Canada generated by assets anywhere in the world are relevant to the “size of parties” threshold, the distinction is important.

Whether gross revenues from sales are considered to be “in, from or into” Canada depends on the location of the seller and/or purchaser. The Guideline states that whether gross revenues are from sales “in, from or into” Canada can often be determined as follows:

  • gross revenues from sales “in” Canada: "revenues from sales to a purchaser located in Canada that are booked in the audited financial statements of a Canadian party or Canadian affiliate of a party";
  • gross revenues from sales “from” Canada: "revenues from sales to a purchaser not located in Canada that are booked in the audited financial statements of a Canadian party or Canadian affiliate of a party"; and
  • gross revenues from sales “into” Canada: "revenues from sales to a purchaser located in Canada that are booked in the audited financial statements of a foreign party or foreign affiliate of a party".

Guideline #15 cautions that where the jurisdiction of incorporation of the seller is not the origin of the sale, the general principles set out above may not apply.

(3) “Generated From Those Assets”
Under Guideline #15, revenues are considered to be generated from assets in Canada if "any of the revenue-generating assets of the target business are located in Canada”. "Revenue-generating assets” is defined to include assets that "contribute in any way and at any stage" to the sale of the asset. This typically consists of things like manufacturing or sales, but omits ancillary functions like human resources.

Guideline #15 notes that merging parties should consider whether the audited financial statements provide a reasonable approximation of the value of revenues "generated from those assets" before relying on them. For example, if the audited financial statements of a party to the proposed transaction have to be adjusted (as a result of certain assets being considered either “in” or “not in” Canada), then similarly, the entries in the financial statements that correspond to gross revenues generated from those assets, may also have to be adjusted.


The draft Guideline #15 provides some hypothetical examples to illustrate the finer points made regarding some of the issues raised. Not all of the interpretations will be without controversy. For example, if a physical revenue-generating asset (such as a cruise ship) is located in Canada at any time during the year, the Bureau will apparently count all of the revenues generated by that asset as having been earned “in” Canada, even if the asset is foreign-registered and was physically located outside of Canada for the majority of the period in question.

The Interpretation Guidelines are not legally binding, but in the absence of court decisions interpreting the Notifiable Transactions Regulations, provide guidance as to the Bureau’s interpretation.

New interpretation guidelines on pre-merger notification released by Competition Bureau

Susan M. Hutton & Robert Mysicka -

On March 23, 2012, the Competition Bureau announced its publication of two draft Pre-Merger Notification Interpretation Guidelines for public consultation.

The publications, dubbed Pre-Merger Notification Interpretation Guideline Number 12 and Number 14 relate respectively to the requirement to submit a New Pre-merger Notification and/or ARC Request Where a Proposed Transaction is Subsequently Amended, and Duplication Arising from Transactions Between Affiliates.

Guideline # 12: Amended Transactions

Under the Competition Act, parties to a proposed transaction that exceeds the monetary thresholds set out in sections 109 and 110 are required under section 14 to notify the Commissioner and supply the Bureau with information prescribed by the Regulations.

In situations where a proposed transaction is amended after the parties have notified the Bureau and/or submitted an ARC request to the Commissioner, the Bureau may require a new notification or ARC to be submitted to reflect the changes made to the transaction. The new draft Interpretation Guideline No. 12 is intended to clarify the Bureau’s policy with respect to such revised notifications/ARC requests. In particular, the Guideline states that the Bureau will take the following considerations into account prior to requesting a new notification and/or ARC request in circumstances where a proposed transaction has been amended:

a) The correctness of the information contained in the notification in respect of the amendments made to the proposed transaction; and

(b) Whether the amendments to the proposed transaction that is the subject of the ARC request will result in the Bureau having to conduct a more in-depth or revised competitive effects analysis.

Interpretation Guideline # 12 describes certain amendments to a transaction and the likelihood that a revised notification and/or ARC request will be required:

New Notifications

  • Addition of a New Party: Where a transaction is amended to add a new party, a new notification with the prescribed information for the added party will be required. However, pursuant to subsection 109(2) of the Act, a new vendor in a share transaction is not a “party” to the transaction, and the Guideline also states the Bureau’s view that a mere guarantor is also not required to file. New notification will also not be required in cases where an affiliate of a notifying party is added except where there is an addition of a significant affiliate whose information was not supplied, in which case an amended filing will be required (and a new waiting period will commence).
  • Addition of a New Asset: Whether adding a new asset to a transaction will require a new notification will depend on whether the information contained in the existing notification will be correct “in all material respects”. In cases where the asset being added is ancillary to the existing assets, the information contained in the existing notification may be accurate and the Bureau will not require a new submission, but the Guideline states the view that addition of a material new asset will typically require a new notification. In determining whether an asset is ancillary the Bureau states that it will evaluate both quantitative and qualitative factors, e.g. book value of the added asset, relation to existing assets, and relative size.
  • Addition of New Voting Shares or Redistribution of Assets, Voting Shares or Ownership Interests: Normally, any of these amendments will require a new notification in order to ensure material accuracy. However if a party acquiring the additional voting shares was previously acquiring more than a 50% voting interest in the target corporation, a new notification will not be required. In addition, where an amendment is made such that an existing party acquires less than an additional 5% of the voting interests of the target, a new notification will not be required unless the additional acquisition will trigger the subsection 110(3) threshold (each of 20% and 50% for public corporations, or 35% and 50% for privately-held corporations or non-corporate entities).
  • Removal of an Asset or Party: This will not normally trigger the requirement for a new notification. However, if the removal of a party will result in an increase in the ownership interest of another purchaser, new notification may be required.

New ARC Requests

Generally speaking, the Bureau will require a new ARC request where an amendment to a proposed transaction will result in a different competitive effects analysis or will require a more in-depth analysis of the transaction. Factors that the Bureau will consider in this regard include:

  • Description of the proposed transaction and the parties;
  • Whether the complexity designation and the information required to commence the service standard for the amended transaction is different from the initial proposed transaction;
  • The relationship of an added party to the existing parties in the proposed transaction (e.g. affiliate, customer, supplier, or competitor);
  • Whether the existing ARC request contemplated the redistribution of assets or ownership interests among the parties, if any;
  • Where a new asset has been added, whether or not that asset is ancillary to the existing assets.

The Bureau has clarified that where a new notification is required in respect of an amended proposed transaction, the 30 day waiting period will begin to run from the date that the Commissioner receives the new notification. Furthermore, parties submitting a new notification will be required to pay the applicable filing fee, unless they have filed both a notification and an ARC request and the amendment to the transaction only requires one of them to be updated.

Interestingly, the draft Guideline seems to deal only with situations in which the Bureau’s review continues, and does NOT address the situation in which an ARC has been issued, and the transaction subsequently changes prior to closing, and the question arises as to the continued validity of the ARC to the modified transaction.

Guideline # 14: Duplication Arising from Affiliate Transactions

The thresholds for notifiable transactions set out in sections 109 and 110 of the Act are measured by either the monetary value of the parties’ assets in Canada or the gross revenues derived from sales “in, from, or into” Canada generated by the assets. Subparagraph 4(1)(a) and subsection 5(2) of the Notifiable Transactions Regulations provide that in determining the amounts under sections 109 and 100, any amount that represents duplication arising from transactions between affiliates shall be deducted.

The draft Interpretation Guideline No. 14 establishes that, in considering whether there is a duplication that may be deducted pursuant to the Regulation, the Bureau will consider the accounting principles normally used by the party (or its affiliates) as well as those that are generally accepted for the type of business carried on by that party or its affiliates.  Simply stated, the purpose of deducting duplicated amounts is to avoid double counting. When evaluating the party size or transaction size for determining whether the thresholds of the Act have been exceeded, subsection 5(2) of the Regulations provides the parties with the ability to deduct revenue from the sale of a product only if it duplicates an equivalent amount of revenue from another sale of that product that is already included in the party size or transaction size calculation.

For more information on interpretation issues in respect of notifiable transactions, please contact the authors or your usual counsel at Stikeman Elliott. 

Increased 2012 thresholds for Competition Act notification and Investment Canada Act review

Susan M. Hutton -

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.

Industry Canada has previously announced that the threshold for advance review and Ministerial approval of direct foreign acquisitions of control of Canadian businesses (those located in Canada, regardless of the current nationality of control), by investors who are themselves ultimately controlled by persons who are citizens in WTO member countries, will be Cdn$330 million for transactions closing on or after January 1, 2012, based on the book value of assets of the Canadian business (wherever located), as of the most recently completed fiscal year. Direct acquisitions of control of Canadian businesses with cultural activities, and direct acquisitions of control of non-cultural Canadian businesses where neither sellers nor purchasers are non-Canadian WTO-investors, are still subject to a review threshold of Cdn$5 million. Indirect acquisitions of control of non-cultural Canadian businesses (pursuant to the acquisition of control of their non-Canadian parents) are not subject to review if either seller or purchaser is a non-Canadian WTO-investor, regardless of the size of the assets of the Canadian business.

Both the Competition Act and the Investment Canada Act thresholds are indexed annually, to account for inflation.

Canada's Competition Bureau releases revised Merger Review Process Guidelines

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.

All transactions involving an operating business in Canada which exceed certain thresholds are subject to mandatory pre-merger notification under the Act, and the parties are not permitted to close the transaction until the expiry or early termination of a 30-day waiting period following pre-notification.  That waiting period can be extended, however, if the Commissioner of Competition requires additional information to complete her review of the likely competitive impact of the transaction and issues a SIR.  Where a SIR is issued within the first 30 days following notification, the waiting period does not expire until 30 days following compliance with the SIR.

The most significant changes in the revised Guidelines include:

  • Hostile Transactions: A new section of the Guidelines deals with the merger review process in the context of hostile transactions. This new section is largely repetitive of the Bureau’s second enforcement guideline regarding hostile transactions and notes that, in the context of a hostile transaction, a target is not able to affect (e.g., delay) the commencement of the relevant waiting periods by delaying its pre-notification filing or its response to a SIR. The section also notes that, to ensure that it receives SIR responses from targets on a timely basis, the Bureau will typically issue a SIR in combination with a timing agreement (to certify compliance on or before a specified date) and/or a court order obtained pursuant to section 11 of the Act, which compels the target to provide information to the Bureau.
  • Pre- and Post- Issuance Dialogue: The revised Guidelines provide more detail about the dialogue between the Bureau and the parties before and after the issuance of a SIR. In particular, pre-issuance dialogue can serve to narrow the scope of a SIR and identify technological barriers to production, while post-issuance dialogue can help to prioritize information to be supplied and specify the custodians and search terms to be used in collecting data. The Bureau typically expects parties to use best efforts to respond to a SIR in a timely manner and on a rolling basis.
  • Updated Search Periods: The revised Guidelines provide that, when a SIR is issued, the default search period for hard copy and electronic records will generally be the year-to-date period immediately preceding the date of issuance of the SIR and the previous two full calendar years. For data requests, the time period will generally be limited to the year-to-date immediately preceding the SIR issuance and the previous three full calendar years. However, these default search periods may vary depending on the facts of a particular case.
  • Requirement to Refresh: The revised Guidelines note that the Bureau will require parties to produce “refreshed” information where the period between the date of issuance of a SIR and the date of certification of a complete response exceeds (typically) 90 days. In such cases, the Bureau will require responsive records to be current to within 30 days of the certification of a party’s response.
  • Timing Agreements: A revised section on “timing agreements” provides more detail about the situations in which the Bureau will consider using a timing agreement as an alternative means of obtaining additional information about a proposed transaction, as opposed to issuing a SIR. The revised section also notes that, in the context of a hostile transaction, the Bureau may request that a bidder provide a timing commitment (not to certify compliance before a specified date) to ensure that the Bureau has sufficient time to obtain and analyze information from all parties.
  • Sample SIR Instructions: The revised Guidelines contain sample SIR instructions, which set out the logistical procedures that parties must follow in complying with the SIR. The instructions include the relevant search periods, the means by which documents must be provided, and an acceptable manner in which to certify that a party has fully complied with a SIR.

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






Competition Bureau raises "size of target" merger threshold

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.

Canadian Competition Bureau releases new Mergers Handbook and Procedures Guide

Susan M. Hutton

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.

The old:

Since the publication of the original Fee and Service Standard Handbook in 2003, the Bureau has classified incoming merger files (once it had sufficient information upon which to make an assessment) as “non-complex”, “complex” or “very complex”.  The vast majority of filings have been “non-complex” and the internal service standard within which the Bureau undertook to complete its review of such files was 14 days.  “Complex” transactions (essentially, those which require a closer look or are factually complicated but which do not look likely to require a remedy) were to be processed within a maximum of 10 weeks (but in practice were almost always to the point of preliminary conclusions within much less time).  “Very complex” transactions (those likely to require a remedy or otherwise factually extremely complicated) were to be processed within a maximum of 5 months.

The new:

The classification exercise has been simplified. Starting November 1, 2010, transactions will be classified as either “complex” or “non-complex”, generally within 5 business days of receipt of sufficient information upon which to base the analysis.  The service standard for non-complex transactions remains 14 days from receipt of the required information (for details, see the Handbook).  The service standard for a complex transaction is now a much-reduced 45 days (which better reflects the reality in cases where a Supplementary Information Request (“SIR”), or “second-request”, is not issued).  That said, the waiting period for a complex transaction for which a SIR is issued is now the same as the statutory waiting period (30 days following submission of the requested information and documents).  In practice, therefore, merger files will still be processed by the Bureau on one of three time-lines: those applicable to non-complex, complex and SIR transactions.  The difference is that the Bureau typically tries to classify an incoming file within a week or so of receiving substantive submissions – whereas it has up to 30 days after receiving a notification to issue a SIR, and thus can take more time to decide whether a complex file should also receive a SIR.  As before, the Bureau’s review of a complex transaction may continue past the expiry of the waiting period, where a SIR is not issued.  All service standards are non-binding, and are tolled if the parties do not provide a timely response to requests for additional information.

The Handbook also contains lists of information to be provided to commence the service standards.  These vary for non-complex mergers with no or minimal overlap, non-complex mergers with moderate overlap, and complex mergers.  Of note, all information required in a notification (including customer contacts) is now requested for all transactions other than non-complex transactions with minimal overlap (i.e., below 10% post-merger).

No change to filing fees:
Also of note, there is no change to the fees required for merger filings in Canada.  They remain at Cdn.$50,000 per transaction, whether the parties file statutory notifications (thus starting the formal waiting period) and/or a request for an Advance Ruling Certificate or “ARC” (which when granted will exempt the transaction from the requirement to notify, but for which a formal waiting period does not run unless also accompanied by a notification).  As clarified by the Competition Bureau earlier this year, no taxes are charged in respect of the filing fee for either a notification or an ARC request.

Policy on “pull and re-file”:
Given the adoption of the U.S.-style merger review procedure, and the consequences to merging parties of receiving rather onerous “second requests” or “SIRs” if the Bureau does not wish the waiting period to expire, it is not surprising that the Competition Bureau reports that some parties have also adopted the U.S. tactic of “pulling” (revoking) a notification if it looks like, with more time, the parties might be able to avoid the issuance by the Bureau of a SIR.  Known as “pull and re-file”, it re-starts the initial 30-day waiting period, thereby extending the time within which the Bureau must decide whether to issue a SIR.  The Handbook clarifies the circumstances under which a notification can be pulled and re-filed without triggering a second $50,000 filing fee.  Essentially, the new notification must be current as of the date submitted (i.e., certain documents dealing with the impact of the transaction (called “4(c)” documents in the U.S.) must be updated, as well as the required financial statements), it must be accompanied by a new affidavit, and it must be received within 5 business days of the initial notification having been withdrawn.  Parties are, of course, free to pull and re-file at any time, but will be required to pay a second filing fee if they wait longer than 5 business days to re-file.

Canadian merger notification regulations revised

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.

The 2009 amendments had already created a single, thirty-day initial waiting period for all transactions (extendable by issuance of a "second request," just as in the United States), and eliminated the choice between a fourteen-day or a forty-two-day waiting period that had existed under the old regime. Under the amended Regulations, the former distinction between a "short form" notification and a "long form" notification has also been removed in favour of a single list of prescribed information for all notifiable transactions. As a result, all transactions will now require the provision of certain information that previously was supplied only for "long forms." The additional requirements are:

  • a copy of each legal document, or the most recent draft of that document if it is not yet executed, that is to be used to implement the proposed transaction; and
  • all studies, surveys, analyses and reports that were prepared or received by a senior officer for the purpose of evaluating or analysing the proposed transaction with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into new products or geographic regions and, if not otherwise set out in that document, the names and titles of the individuals who prepared the document and the date on which it was prepared. (In the United States, for the equivalent Hart-Scott-Rodino filing, these types of documents are normally referred to as the "4(c) documents" - the Canadian language has also been changed to conform with that in the Hart-Scott-Rodino Act, such that a single search will now suffice.)

The amended Regulations also describe how the asset and revenue values are to be calculated to determine whether an amalgamation satisfies the new notification test, which establishes a second "size of parties" threshold for amalgamations (each of at least two of the amalgamating parties must have assets or gross revenues exceeding C$70 million).

The 2009 Competition Act amendments also permit the indexing of the C$70 million "size of transaction" threshold. Although the Minister responsible can reduce the threshold to C$67 million in keeping with the slight dip in Canadian prices in 2009, he has not as yet taken action in this regard.

Lower thresholds for both Competition Act and Investment Canada Act in 2010

Susan M. Hutton

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.

Meanwhile, Industry Canada has published the new Investment Canada Act threshold for review of direct WTO Investor acquisitions of control of Canadian businesses for transactions closing in 2010. The new review threshold will be C$299 million, based on the book value of assets of the Canadian business. Draft regulations that would see the threshold increased to C$600 million and based on the "enterprise value" of the Canadian business have not yet been passed, and are being reviewed following receipt of comments by the Minister.

Both thresholds are indexed to Canadian GDP, which fell during 2009 due to the global recession.

Canadian Competition Bureau unveils Revised Merger Review Process Guidelines and filing requirements

Susan M. Hutton

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.

Among other things, the proposed amendments to the Notifiable Transactions Regulations set out the new uniform merger filing requirements, which essentially will mandate the filing of a "short form" notification plus documents in all cases. A "short-form" notification currently requires, along with certain basic information about the parties and the transaction, lists of the top twenty customers and suppliers for the principal products of each party and its affiliates with significant business in or with Canada. After coming into force (likely in summer 2009), the amended Regulation will also require the filing of two categories of documents:

  1. legal documents that are to be used to implement the proposed transaction (or the most recent drafts thereof); and
  2. studies, surveys, analyses and reports prepared or received by a senior officer for the purpose of evaluating or analysing the proposed transaction with respect to "market shares, competition, competitors, markets, potential for sales growth or expansion into new products or geographic regions."

The latter requirement is virtually identical to specification 4(c) of the merger notification form used in the United States3.These types of documents were previously required to be filed in Canada only as part of a long-form notification, but will now be required in all cases where formal notification is made. How many transactions this will affect remains to be seen, however, as the vast majority of notifiable transactions in Canada do not raise any serious competition issues and have in the past been the subject of requests for advance ruling certificates (ARCs) rather than formal notifications. It is not yet known whether the Bureau will now expect the so-called "4(c)" documents to accompany ARC requests - even in cases involving no or trivial competitive overlap. Doing so would significantly increase the regulatory compliance burden for the majority of notifiable transactions in Canada, arguably with little or no benefit to those reviewing such routine transactions.

The more controversial of the two draft documents, however, is likely to be the draft Guidelines for the The Revised Merger Review Process. The Guidelines seek to outline the Bureau's approach to the new two-stage merger review process generally, and to "supplementary information requests" in particular. As described in the Guidelines, the Act now provides for an initial 30-day waiting period, during which the majority of mergers will be reviewed (and during which the transaction may not be completed). For transactions where further review is required, the Act authorizes the Bureau to issue a "supplementary information request" which extends the waiting period for an additional 30 days from the date the requested information is supplied.

Second requests issued by the Bureau's counterparts in the United States are infamous for the time, money and managerial resources that must be expended in order to comply, and for the exhaustive scope of the information required. The American Bar Association revealed in 2007 that for 23 transactions for which information had been gathered, the total cost of complying with a second request had averaged over US$5 million (median US$3.3 million) and that agency review had taken about seven months (both average and median) to complete4. Competition Bureau Officials in Canada have sought to allay fears over the potential adoption of a comparable approach in Canada. That said, the draft Guidelines seem implicitly to confirm the Bureau's intention to adopt the basic premise of U.S. second requests, which is that before allowing the waiting period to expire, the agencies will require the production of e-mails and other documents generated or received over a two- to three-year period by those in positions of authority concerning the overlap products - whether probative or not.

The Canadians propose to limit the search to a maximum of 30 custodians in most cases (the ABA letter referred to above revealed that an average of 126 custodians and a median of 94 were required to be searched in the sample of second requests surveyed), and to engage in pre- and post-issuance dialogue in order to avoid, or at least narrow, the scope of a Canadian second request. The draft Guidelines also discuss internal controls on the scope and issuance of second requests, and outline internal "appeal" procedures parties may follow if they object to the scope of a second request.

Implicit throughout the Guidelines, however, is the assumption that - within 30 days of being notified of a proposed transaction that raises serious competition issues - the Bureau will demand production not only of the  information most relevant to its analysis (as was previously its practice with the issuance of relatively targeted information requests or court orders, typically much later in the process), but of all information that could potentially be relevant in any way to eventual litigation of the case. As such, it would appear that despite limiting the scope of second requests as compared to its U.S. counterparts, the burden that the Competition Bureau will place on parties to transactions that raise complex competition issues in Canada (and who wish eventually to see the waiting period expire) is about to undergo a quantum leap.

The Guidelines also indicate that, consistent with the practice in the United States, the Bureau will be open to identifying the most important information it requires on key issues, and to working through the issues and potentially clearing the transaction before the full scope of the information requested in the second request is actually produced. While parties may in some cases have their transactions cleared without fully complying with a second request, not all parties will be able easily to reach agreement with the Bureau on required remedies. For such transactions, the cost of reaching the position where the Bureau must go to the Competition Tribunal and prove a prima facie case in order to further delay the transaction may now be very high indeed.

As noted above, comments are requested in respect of the draft Guidelines by May 29, 2009, and in respect of the draft amendments to the Regulations by June 3, 2009.

1Canada Gazette Part I, April 4, 2006.
2Bill C-10, The Budget Implementation Act, 2009, received Royal Assent on March 12, 2009. In addition to measures designed to stimulate the Canadian economy, Bill C-10 included sweeping reforms to the Competition Act and the Investment Canada Act. Please see the
March, 2009 issue of The Competitor for details.
3The language in Item 4(c) of the Hart Scott Rodino Antitrust Improvements Act of 1976 reads "all studies, surveys, analyses and reports which were prepared by or for any officer(s) or director(s) (or, in the case of unincorporated entities, individuals exercising similar functions) for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets. . ."
4Letter to the Antitrust Modernization Commission dated February 22, 2007 from the Section of Antitrust Law of the American Bar Association re: Data Regarding the Burden of Responding to HSR Second Request Investigations (available

Primer on amendments to Canada's Competition Act and Investment Canada Act

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.

Competition Act Amendments
Two-tracks for dealing with agreements between competitors

The amendment of section 45 of the Act creates a "per se" criminal conspiracy offence with respect to agreements or arrangements ("agreements") between competitors (which includes potential competitors) to:  fix prices; allocate sales, customers or markets; or fix or control production or supply of a product.A new counterpart civil provision permits the Commissioner to deal with anti-competitive agreements that are not "hard core" (see below). A defence to criminal prosecution exists if the accused can establish on a balance of probabilities that the alleged conspiracy is "ancillary" to a broader or separate agreement between the same parties that does not itself contravene the provision and is "directly related to, and reasonably necessary" for giving effect to the objective of the broader agreement ("ancillary restraint defence"). The amendments expressly preserve the application of the common law "regulated conduct" doctrine (which exempts actions which are authorized or required pursuant to legislation).Agreements relating solely to exports are still exempt. Penalties under the new offence have more than doubled from the former maximum 5 years imprisonment and/or C$10 million fine, to a maximum of 14 years and/or C$25 million - still far lower in terms of potential fines than in the U.S. or the EU. The new conspiracy offence has a delayed effective date of one year after March 12, 2009, during which time businesses can seek an advisory opinion on the legality of existing or proposed agreements (but may not be granted immunity against violations of the existing law unless they otherwise qualify under the immunity program).

  • In contrast to the old conspiracy provision, which required the prosecution to establish an "undue" prevention or lessening of competition, the amended offence, albeit narrower in terms of the type of conduct it encompasses, does not on its face require market power or any impact on competition for conviction.  Rather, it requires only that the parties to the impugned agreement be competitors or potential competitors, which will necessarily raise issues around the definition of the "market" for the product. In consultations on language similar to that in the Bill C-10, many parties criticized the ancillary restraint defence as being too narrow and potentially subjecting many widely-accepted agreements (e.g., franchise or exclusive distribution arrangements) to criminal prosecution.  We will have to see whether the "rule of reason" analysis followed by US courts will become relevant in Canada, as our courts struggle to interpret the new defence.

The "second track" of the new approach to cartels creates a new civilly reviewable matter in respect of existing or proposed agreements between persons, two or more of whom are "competitors", which prevent or lessen competition substantially.  The factors to be considered in undertaking this assessment are effectively the same as the existing merger review provisions. On application by the Commissioner of Competition, the Competition Tribunal may prohibit any person, whether or not a party to the agreement, from doing anything under the agreement or, subject to a person's consent, may order the person to take any other action.  In terms identical to the existing merger review provisions, an efficiencies defence applies if the agreement brings about "gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition" and the efficiency gains would not be attained if a prohibition order were issued.  Like the amendments to section 45, the new "civil conspiracy" provision has a delayed effective date of one year after March 12, 2009.

  • In contrast to the per se criminal conspiracy offence, the new civil conspiracy provision applies to agreements between competitors to do anything (not simply to fix prices, for example) but only if the agreement substantially lessens or prevents competition.  While the civil conspiracy provision only applies to agreements between "competitors", the provision, in contrast to the proposed criminal conspiracy offence, omits the requirement that the parties be competitors in respect of the product that is the subject of the agreement. Moreover, empowering the Competition Tribunal to make a prohibition order against a person who is not a party to the agreement potentially raises issues of procedural fairness.
De-criminalized pricing practices

De-criminalization of price discrimination, predatory pricing and disproportionate promotional allowances.

  • These "unfair" pricing practices were previously liable to criminal prosecution and punishable by imprisonment for up to 2 years. Stakeholders on all sides have long recognized the criminal sanctions to be inconsistent with modern economics.  With the repeal of section 50 of the Competition Act, low prices that undercut the competition or the provision of different prices to different customers can only be sanctioned civilly as part of a "practice of anti-competitive acts" under the abuse of dominance provisions - and only if they substantially lessen or prevent competition.  The liberalization of Canada's pricing laws will bring welcome relief to many Canadian businesses and will enhance competition to the extent the old law was chilling pro-competitive price competition.
Price Maintenance - Replacement of criminal provision with civil provision

The previous criminal prohibitions against attempting to induce another person to raise or refrain from lowering their prices, and against discriminating against a customer because of its low pricing policy, have been replaced by a new civil provision.  On application by the Commissioner of Competition or by a private party to whom leave has been granted, the Competition Tribunal may prohibit the conduct or require a person to accept another person as a customer if the conduct has had, is having or is likely to have an "adverse effect on competition in a market."

  • While the amendment effectively limits the provision to resale situations (the previous provision did not), the choice of "adverse effect on competition" as the relevant competitive effects test, which is currently used under the civil "refusal to deal" provision, suggests that a lower impact on competition may be required than is the case in respect of other civil matters (such as abuse of dominance and mergers) where a "substantial" prevention or lessening of competition must be shown.  At the same time, the threshold for a private party to obtain leave to bring an application in respect of price maintenance is lower than in refusal to deal cases, since the amendments require only that the applicant be "directly affected" by the conduct, not that the applicant also be "directly and substantially affected", as in respect of refusal to deal and exclusive dealing cases. That said, civil review is thought by many to be more appropriate than the old criminal prohibition, which subjected Canadian businesses to greater restrictions than were imposed on their US counterparts.
Deceptive marketing practices/obstruction of justice

Increased penalties for the criminal offences of:  misleading advertising, deceptive telemarketing, and deceptive notice of winning a prize (in each case, to a maximum 14 years imprisonment and/or a fine in the discretion of the court); obstruction (to a maximum 10 years imprisonment and/or a fine in the discretion of the court, if convicted on indictment, or if on summary conviction, a maximum of 2 years imprisonment and/or a maximum C$100,000 fine); and failure to comply with search warrants and court orders to provide information (to a maximum 2 years imprisonment and/or a fine in the discretion of the court, if convicted on indictment, or if on summary conviction, a maximum of 2 years imprisonment and/or a C$100,000 fine).

Increased penalties for (non-criminal) misleading advertising

Introduction of a restitution remedy in respect of the civilly reviewable practice of making materially false or misleading representations to the public for the purpose of promoting a business interest.  Subject to a due diligence defence, restitution, in any manner ordered by a court or the Competition Tribunal, will be capped at the total amount paid for affected products and be payable to persons who purchased the products, "except wholesalers, retailers or other distributors, to the extent that they have resold or distributed the products".  A court or the Competition Tribunal may issue an interim injunction prohibiting disposing or dealing with assets so as to frustrate a restitution remedy.

  • As worded, the new restitution remedy has the potential to raise complicated issues regarding, among other things, passing-on (or indirect effects) with respect to the apportionment of overcharges at various levels of the distribution chain.  It does not apply to criminal deceptive marketing practices.

Increased administrative monetary penalties for all civilly-reviewable deceptive marketing practices (including inaccurate "ordinary price" claims).  In the case of individuals, the maximum penalty increased to C$750,000 for a first infraction and C$1 million for each subsequent infraction, with corresponding increases for corporations to C$10 million and C$15 million, respectively.

  • Previously, penalties for individuals were capped at C$50,000 for a first infraction and C$100,000 for each subsequent infraction, while penalties for corporations were limited to C$100,000 and C$200,000 for first and subsequent infractions, respectively.
Fines for abuse of dominance/repeal of "airline" provisions

Introduction of "administrative monetary penalties" for abuse of dominance (so-called to negate the constitutional argument that their imposition by the Competition Tribunal pursuant to its civil procedures would amount to the imposition of criminal sanction without due process).  Where ordered by the Competition Tribunal, the maximum fine is C$10 million for a first infraction and C$15 million for each subsequent infraction.

  • Administrative monetary penalties were previously only available under the abuse of dominance provision against domestic airlines, which have now been repealed. Both their utility and their legality have been questioned by some commentators.
Merger review procedures

Increase in the "size-of-transaction" threshold for transactions requiring pre-merger notification.  For the remainder of 2009, the target, together with its affiliates, must either have assets in Canada that exceed C$70 million or annual gross revenues from sales in or from Canada generated from those assets that exceed C$70 million.  In the case of corporate amalgamations, the revised C$70 million threshold must be exceeded by each of at least two of the amalgamating corporations, together with its affiliates.  The C$70 million threshold will be indexed annually to GDP, unless and until a different amount is prescribed by regulation.

  • The size-of-transaction threshold previously was C$50 million in assets in Canada or annual gross revenues from sales in or from Canada generated from those assets.  It was not indexed, nor in the case of corporate amalgamations did it need to be met be each of two parties to the transaction.

Introduction of a U.S.-style two-stage merger review process for transactions subject to pre-merger notification.  An initial 30-day waiting period applies following the submission of certain prescribed information and could be reset for an additional 30 days following compliance with a second request by the Commissioner of Competition for additional information.

  • Previously, parties to a notifiable transaction had the option of submitting either a "short-form" notification, which carried with it a 14-day waiting period, or a "long-form" notification, which carried with it a 42-day waiting period (if a short-form notification was filed, the Commissioner could request a long-form notification during the 14-day waiting period, in which case the 42-day waiting period began only once the long-form notification was filed).  In either case, the waiting period was finite, and could not be extended.  The Commissioner's powers to obtain information beyond that contained in a notification were limited to voluntary information requests and court orders.
  • The new procedure increases the waiting period for all transactions (more than 90% of which are reviewed by the Bureau within 14 days of receipt of a request for an Advance Ruling Certificate (ARC) or similar competitive analysis), to a minimum of 30 days unless terminated earlier by the issuance of an ARC or a no-action letter.
  • For complicated transactions, however, the new provisions will effectively mean there is no determinable end to the waiting period, as it will depend on how long it takes for the parties to comply with the "second request" for additional information that is relevant to the Commissioner's assessment of the proposed transaction.  As with the U.S. system, this may provide an incentive for the Commissioner to request as much information as possible within the 30-day initial waiting period, when detailed analysis has typically yet to begin in very complex transactions.  It remains to be seen whether this will result in an "everything and the kitchen sink" approach by the Bureau to second requests. 
  • In the face of the Federal Court's criticism of the Commissioner for issuing overly broad requests for information in the Labatt/Lakeport case last year, however, it seems that the Government is responding, some would say perversely, by removing the express provision for judicial oversight of the process.

Introduction of injunctive relief to enforce compliance with waiting periods.  If a person has completed or is likely to complete a proposed transaction before expiry of the applicable waiting period, a court or the Competition Tribunal, on application by the Commissioner of Competition, can issue an interim injunction prohibiting implementation of the transaction or requiring its dissolution and, in the case of a completed transaction, can impose administrative monetary penalties of up to C$10,000 for each day of non-compliance with the waiting period.

  • Failure to comply with the statutory waiting period was previously a criminal offence punishable by a maximum fine of C$50,000.

Decrease to one year the period of time within which the Commissioner of Competition may challenge a merger following its substantial completion.

Investment Canada Act amendments

Bill C-10 also made significant amendments to the review of foreign investments under Canada's Investment Canada Act:

  • Increase in the minimum threshold for Ministerial review and approval of direct acquisitions of control of Canadian businesses by WTO-member based investors.  The threshold will be C$600 million in the  "enterprise value" of the assets of the Canadian business for investments made within two years after the federal Cabinet proclaims the thresholds in force, C$800 million for the subsequent two years, C$1 billion for the subsequent year and the portion of the year thereafter that ends on December 31, and thereafter indexed to GDP.  Please note:  these new thresholds have not yet been proclaimed in force.

    • The threshold for review of direct acquisitions by WTO investors in 2009 is currently C$312 million and this amount is indexed annually to GDP.  It will increase to C$600 on an as-yet-unknown date when the new thresholds are proclaimed in force.
    • Indirect investments by WTO investors will remain exempt from review, unless they fall within certain "sensitive" sectors, the scope of which is to be narrowed to only "cultural businesses", see below.

    Elimination of the lower C$5 million review threshold for direct acquisitions (and the C$50 million threshold for review of indirect acquisitions of control) of Canadian businesses engaged in the "sensitive sector" activities of financial services, transportation services and uranium production, leaving only "cultural businesses" subject to this threshold and to review and approval by the Minister of Canadian Heritage.

    Retroactive creation of a "national security" test for every investment in or establishment of a business with assets, employees, agets o offices in Canada, regardless of the value of the business or its assets, which the Minister of Industry has "reasonable grounds" to believe "could be injurious to national security".  Ultimately, if the Minister of Industry, after consultation with the Minister of Public Safety and Emergency Preparedness and representations from the investor, is satisfied that the investment would be "injurious to national security", the federal Cabinet may "take any measures" it "considers advisable to protect national security", including ordering the investment not to be implemented or to be implemented subject to conditions or written undertakings, and if the investment has been implemented, requiring divestiture of the Canadian business.

    • "National security" is not defined in Bill C-10, nor do the amendments specify factors that are to be considered in determining whether an investment is "injurious" to national security.  Time periods for the national security review provisions would be prescribed by regulation.
    • The national security test is applicable to all transactions that have closed since February 6, 2009 (the day the Bill was announced).


Bill C-10 Competition Act and Investment Canada Act amendments enacted

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.

With the exception of the new hybrid/"dual-track" conspiracy provisions, all of the Competition Act amendments enter into force immediately. These include

  • a new U.S.-style "two-stage" merger regime;
  • an increase in the "size-of-transaction" threshold for pre-merger notification;
  • de-criminalization of predatory pricing, price discrimination and promotional allowances;
  • conversion of resale price maintenance from a per se criminal offence to a civilly reviewable practice;
  • substantial increases in the penalties for deceptive marketing practices and misleading advertising; and
  • introduction of substantial administrative monetary penalties for abuse of dominance.

A delayed one-year implementation date applies to the new "dual-track" conspiracy provisions, which create a per se criminal offence for agreements between competitors to fix prices, allocate sales, customers or markets, or fix or control production or supply of a product, and subject other types of agreements between competitors to civil review if they prevent or lessen competition substantially.

All of the Investment Canada Act amendments are also now in force (indeed, most changes are retroactive to February 6, 2009), with the exception of increased thresholds for review of direct investments by WTO investors, which will come into force on a day fixed by order of the Governor in Council (the federal Cabinet). Provision is also made for Cabinet to prescribe regulations in respect of certain of the amendments. The Competition Bureau and the Investment Review Division of Industry Canada have yet to issue guidelines specifying how the new provisions will be enforced.

Massive amendments to Competition Act and Investment Canada Act tabled today

Susan M. Hutton

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).

The proposed amendments to the Competition Act include provisions to strengthen the hand of enforcers in just about every area of the law:

  • the creation of a "per se" criminal conspiracy offence (Canada's conspiracy provision, unchanged since the 1890s, had required the Crown to show an "undue lessening or prevention of competition" and no such competitive impact need now be shown for certain kinds of agreements such as cartels to fix prices, allocate markets, etc.),
  • an increase of the penalties for criminal conspiracies to up to 14 years in jail and/or $25 million in fines,
  • removal of the criminal predatory pricing, price discrimination, promotional allowance and price maintenance provisions (the latter replaced by a provision allowing for civil review of price maintenance),
  • significant increases to penalties for misleading advertising,
  • extending bid-rigging to include not only undisclosed submission of bids arrived at by agreement or arrangement but to withdrawal of bids as well,
  • introduction of administrative monetary penalties (fines) for abuse of dominance of up to $10 million for a first offence and $15 million for subsequent offences,
  • deletion of the "abuse of dominance" provisions that had been applicable only to domestic airlines,
  • creation of a new provision for civil review of anti-competitive agreements between competitors that are not "per se" criminal but are nonetheless anti-competitive,
  • raising the "size of the target" threshold for advance merger notification to more than $70 million (Cdn) in assets in Canada or gross revenues from sales in or from Canada (to be indexed for inflation, unless otherwise specified), and
  • the introduction of a US-style two-stage merger review process, complete with a 30-day initial waiting period and a provision that "stops the clock" on the expiry of that waiting period until 30 days after the parties have complied with a second request for information (which can now be issued without judicial oversight).  Fines for non-compliance with the waiting periods have also been significantly enhanced.

The Investment Canada Act is also to be significantly amended, with the threshold for review of direct acquisitions of control by WTO-member based investors increasing to C$600 million, based on the "enterprise value" of the Canadian business (as opposed to the current threshold based on book value), for the next two years after the bill enters into force, to C$800 million for the two years following, and to C$1 billion for another two years, to be indexed according to inflation thereafter.  More importantly, a new "national security test" has been created, allowing the federal Cabinet to block investments on the basis that they threaten national security (with no minimum threshold for the size of investments potentially subject to such review), and the so-called "sensitive sectors" subject to lower review thresholds have been eliminated (other than "cultural businesses").

These proposed reforms represent the most significant overhaul of Canadian competition laws since the introduction of the modern statute in 1986.  They provide the Commissioner of Competition with unprecedented new enforcement tools in all areas of antitrust law, from the prosecution of cartels, to penalizing firms that abuse dominant positions or engage in misleading advertising, to impeding those wishing to close mergers that raise antitrust issues.  With these amendments, the Government has signaled a desire to get very serious about competition law enforcement in Canada.  In light of its new powers, the Bureau will be under pressure to demonstrate stepped-up enforcement of the cartel and abuse of dominance provisions, and businesses should expect to see lengthier and more burdensome merger reviews for difficult cases.

With the creation of a CFIUS-style national security test for investments within the Investment Canada Act, the government's ability to block foreign investments on national security grounds is clarified and strengthened, even as the number of transactions subject to review for ensuring they will be of "net benefit" to Canada has decreased.

While the Bill has just been introduced to the House of Commons, and must still pass through several stages before it becomes law, by including these amendments within the budget implementation bill, the Government has potentially forestalled serious debate.  Of course, anything is possible in a minority Parliament, as the events of the past few months have shown, and time will tell whether all of these amendments will be enacted.  As unprecedented as the scope of the amendments, however, has been the Government's failure to publicly consult with stakeholders with respect to some of the proposed changes. 

Throne speech promises big changes to Canada's competition and foreign investment regimes

Susan M. Hutton

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."

Given the apparent trend toward the significant strengthening of competition law enforcement in Canada, as well as the loosening of the foreign investment review regime (while at the same time, in all likelihood, empowering the government to reject foreign investments on "national security" grounds), the business and legal communities in Canada and abroad will be keenly interested in future legislative announcements.

Competition Act Reforms:

The throne speech was short on specifics, but as previously reported in this newsletter, the Competition Policy Review Panel's report, Compete to Win, recommended several important amendments to the Competition Act, including:

Criminal Matters
  • Replacing the conspiracy (cartel) provisions with a per se criminal offence for so-called "hard core" cartels such as price-fixing and market-sharing agreements, with no need to show anti-competitive effects (and subjecting them to increased maximum fines); as well as introducing a second, civil track for review by the Competition Tribunal of other anti-competitive agreements between competitors;
  • Repealing the criminal price discrimination, promotional allowance and predatory pricing provisions (leaving such practices to be dealt with, as potential aspects of a civil "abuse of dominance" case); and
  • De-criminalizing resale price maintenance (currently a per se criminal offence in Canada), and permitting private parties as well as the Commissioner of Competition to bring actions before the Competition Tribunal in respect of price maintenance with substantial anti-competitive effects.
Civil Matters
  • Empowering the Competition Tribunal to impose administrative monetary penalties (i.e., fines) of up to $5 million for abuses of a dominant position (currently, a civilly reviewable practice that is not liable to fines, damages or enforcement proceedings other than by the Commissioner of Competition).
  • Harmonizing Canada's merger review procedures with those of the United States under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (HSR), with an initial review period of 30 days (most non-controversial mergers are currently cleared by the Competition Bureau in 14 days or less) and the discretion, on the part of the Commissioner of Competition, to initiate an indeterminate "second stage" review period that would end 30 days after the merging parties comply with a "second request" for documents and information (merging parties are currently free to close even problematic transactions as early as 42 days after filing long-form notification materials); and
  • Increasing the financial thresholds for merger notification.

Legislation to create a per se offence for hard core cartels (without requiring the Crown to prove an anti-competitive effect) has been widely expected, but remains controversial. Similarly, giving the Tribunal the power to issue fines for abuse of dominance has been opposed by some, but was the subject of several bills in the past few years, and has been popular among all major political parties. Combined with the proposed indeterminate second-stage review procedure for difficult mergers, and the removal of the Federal Court from its role as the gatekeeper of Competition Bureau information demands in the merger review process, the Panel's intention to strengthen the Competition Bureau's hand in all aspects of competition law enforcement was evident.

The precise timing and scope of amendments is unclear, but draft legislation seems imminent, and opposition parties are likely to seek only to further strengthen government legislation.  Of note, the Conservative party platform mentioned reforms to the cartel provisions as well as fines for abuse of dominance, but made no mention of the Panel's proposal to adopt US-style merger review procedures.

Investment Canada Act Reforms:

The Competition Policy Review Panel report also recommended several important changes to Canada's foreign investment review regime, some of which were also mentioned in the Conservative party election platform:

  • Increasing the minimum threshold for Ministerial review and approval of foreign acquisitions of control of Canadian businesses (to C$1 billion based on the as-yet-undefined "enterprise value" of the business, from the current C$295 million test based on book value of assets);
  • Shifting the onus to the Minister to find that the proposed investment would be "contrary to Canada's national interest" (the current onus is on the purchaser to satisfy the Minister that the acquisition will be of "net benefit" to Canada);
  • Eliminating the lower review thresholds for the "sensitive" sectors of financial services, transportation services and uranium mining (currently, virtually all such businesses will meet the C$5 million asset threshold for direct acquisitions), leaving only "cultural businesses" subject to such low thresholds and to special review by Heritage Canada; and
  • Eliminating the requirement to notify the government of non-reviewable foreign acquisitions of Canadian businesses.

Of note, the federal government already issued guidelines (in December, 2007) regarding the review of investments by foreign state-owned enterprises (SOEs), but has yet to implement a national security test for foreign review (Canada's answer to the review implemented in the United States under the aegis of the Committee on Foreign Investment in the United States, or CFIUS, post-9/11). But the throne speech did mention the need to "safeguard. national security" in the same breath as the need to "expand the opportunities for Canadian firms to benefit from foreign investment", and a national security test is widely anticipated in any upcoming legislation.

Other nuggets from the throne speech:

The throne speech also hinted at other noteworthy changes to several of Canada's regulatory regimes. Highlights include:

  • "Ensuring freedom of choice for grain marketing in Western Canada" (this could mean significant changes for the Canadian Wheat Board);
  • Modernizing Canada's copyright laws and ensuring stronger protection for intellectual property (somewhat controversial amendments to the Copyright Act, including measures to protect digital rights management, were before Parliament when the election was called);
  • "The reduction of regulatory and other barriers" to extending Canada's natural gas pipeline network in the North, and support for new nuclear power initiatives;
  • Working with the provinces to remove barriers to internal trade, investment and labour mobility by 2010 (Canadian provinces often have higher trade barriers between each other than Canada has with other countries);
  • Working to develop a North American cap and trade system for greenhouse gas emissions.

To quote Bob Dylan (1963): "The Times They Are a-Changin".

Transport Canada introduces guidelines for new CTA merger review provisions

Kim D.G. Alexander-Cook

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.

Merger Review under the Canada Transportation Act

For all transactions "involving" a federal transportation undertaking, Section 53.1 of the CTA, enacted in June, 2007, provides that a copy of the Competition Act merger notification must be sent to the Minister of Transport at the same time it is filed with the Competition Bureau.

In the first phase of review, the Minister, after receiving a notification, forms an opinion as to whether the proposed transaction raises issues with respect to the public interest as it relates to national transportation.  If the Minister is of the opinion that such public interest issues are raised, a second phase of review commences. If not, the process ends. If a second phase of review is ordered, the Minister will direct the Canada Transportation Agency (the Agency) or any other person to examine and report on any national transportation-related public interest issues that are raised. Such reports, along with a report from, and consultation with, the Commissioner of Competition,3  are meant to inform the Minister's eventual recommendation to the Governor in Council (the Cabinet) for or against Cabinet approval of the proposed transaction, with or without terms and conditions.4

The Transport M&A Guidelines

The CTA contains explicit provision for Ministerial guidelines, elaborated in consultation with the Competition Bureau, that (1) specify the information parties must provide to the Minister and Agency when giving notice of a proposed transaction, and (2) include factors that may be considered to determine whether the transaction raises public interest issues in respect of national transportation.5

Public Interest Factors

The Transport M&A Guidelines enumerate five categories of public interest factors to be considered in assessing whether a transaction involving a federal transportation undertaking raises issues with respect to the public interest as it relates to national transportation.6The five categories (Economic, Environmental, Safety, Security and Social) and the numerous potential factors set out under these headings can be summarized as follows:

Economic Outcomes: Factors potentially impacting economic outcomes are listed under five sub-headings:

  1. Impacts on Users of the Transportation System: The prime interest here is any impact on prices, service levels and access to services by users.
  2. Impacts on Communities: Included are impacts on the location of a non-transportation industry (e.g., tourism), on labour and employment, and on service availability/affordability in low-density areas.
  3. Impacts on Other Transportation Undertakings: This includes impacts on intermodal connections and vertical and horizontal competitive effects.
  4. Impacts on Canada: Impacts on Canadian competitiveness, leadership, management/workforce expertise, harmonization and productivity improvements, trade, gateways and corridors, innovation, technology and R&D, taxation and government expenditure are all mentioned.
  5. Impacts on the Undertakings Involved: Mentioned here are the viability of the resulting entity and the cost/revenue impacts on the undertakings.

Environmental Outcomes: Improvement of the quality of life and the environment by reducing congestion and pollution will be a positive public interest factor.

Safety Outcomes: Where relevant, the potential to improve safety in the workplace and communities will be considered.

Security Outcomes: Transactions are not to have an adverse impact on the capacity to protect citizens and to respond to any threat, and the reliability of new owners where there is a change of control of a "key undertaking" could be relevant.

Social Outcomes: Impacts on low-income workers and families, on persons with disabilities, on public- and private-sector accountability and transparency, on culture and on Canadian sovereignty are identified as potential factors.

Information Requirements for a Notice of a Proposed Transaction

The Transport M&A Guidelines specify that a notice of a proposed transaction should include: (1) information required to be filed under the Competition Act; and (2) a Public Interest Impact Assessment.

As regards (1), it is already a requirement under the CTA that a notice to the Minister/Agency contain a copy of the information required to be filed in a statutory notification under the Competition Act. However, the Transport M&A Guidelines go on to indicate that the notice to the Minister is also to include information supplied to the Competition Bureau in support of a request for an advance ruling certificate (an ARC) under the Competition Act. This is not uncontroversial, however, because receipt of an ARC exempts a transaction from notification under the Competition Act, and thus also, on the face of the legislation, from any requirement to give notice under the CTA.7 

As regards the Public Interest Impact Assessment, the Transport M&A Guidelines provide that this submission should include, along with any other information the parties may wish to include:

  • a description of the transaction and its objectives, the transportation undertaking(s) involved and the objectives with respect to the undertaking(s), and of any proposed changes to the business or strategic plans in respect of such undertaking(s);
  • an assessment of relevant public interest impacts, information with respect to these impacts and a description of any proposed mitigation or remediation for any adverse impacts;
  • identification of major stakeholders who may be interested in the transaction and a description of any consultations with them;
  • identification of other government approvals required and their status; and
  • supporting evidence for the statements made in the submission.

The draft Transport M&A Guidelines are open for comment, as noted above, until September 30, 2008. While they add clarity to the form that filings with Transport Canada will take, stakeholders may well take issue with the view that transactions that have been the subject of an ARC, and are thus exempt from notification under the Competition Act (and, on the face of it, the CTA merger review provisions), must file under the CTA if they meet the financial thresholds.  Another area where clarification would be useful is the definition of a "transportation undertaking."

An obvious category of exemption from the CTA merger review provisions would be, for example, transactions subject to public interest review by the National Energy Board or, for that matter, foreign investment review (which includes consideration of national transportation policies) under the Investment Canada Act. Given the broad scope of information requested in the draft Transport M&A Guidelines, however, it appears at first blush that Transport Canada contemplates a review that would largely duplicate such processes.

1The CTA refers simply to a "transportation undertaking". The "federal" qualifier used here reflects the fact that certain transportation undertakings are only intra-provincial in nature and therefore, as a constitutional matter, are not subject to the CTA.

2In the case of a proposed air transportation undertaking, notice must also be given to the Canada Transportation Agency.

3If a public interest review is ordered under the CTA, then the Commissioner's review of the transaction is effectively subsumed as part of the broader CTA public interest review.

4Additional details about the process were reported in the July, 2007 issue of The Competitor.

5The Transport M&A Guidelines also address certain other features of the review process, including confidentiality, consultations with stakeholders, requests for additional information, assessment timing, and pre-notice consultations with parties.

6These categories spring directly from the "goals" for any regulation and strategic public intervention in transportation in Canada enumerated in Canada's National Transportation Policy as set out in the CTA, namely "economic, safety, security, environmental and social outcomes that cannot be achieved satisfactorily by competition and market forces".

7The Transport M&A Guidelines also state that parties are required to file the CTA notice of a proposed transaction (including, presumably, the Public Interest Impact Assessment) at the same time as parties either file a request for an ARC or a notification under the Competition Act.

Something old, something new: Private member's Bill moves forward with potential for big changes to Canada's Competition Act

Susan M. Hutton

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:

  • enabling the Commissioner to commence an inquiry into an entire industry sector whenever she "has reason to believe.that grounds exist" for doing so1;
  • removing the word "unduly" from section 45 (thus turning agreements with any negative impact on the named aspects of commerce or competition into per se criminal offences) but introducing a reverse onus defence if the accused can establish that the agreement is "reasonably necessary to attain gains in efficiency or encourage innovation";
  • increasing the maximum fine under section 45 from $10 million to $25 million;
  • deleting the criminal prohibitions against price discrimination and predatory pricing (thus making them amenable of redress only under the civil abuse-of-dominance provision);
  • adding a general definition of "anti-competitive act" to section 78 (abuse of dominance): "abusive exploitation of a dominant position in the market";
  • deleting the airline-specific definitions of anti-competitive act from section 78, as well as section 4.1 in its entirety2;
  • giving the Competition Tribunal the ability to impose not only large fines for abuse of dominance (up to $10 million for a first offence, and as much as $15 million for each subsequent order, or greater amounts so long as they are not more than the gross revenues earned as a result of the practice of anti-competitive acts), but also to award damages to private complainants in abuse cases (section 79)3
  • giving the Tribunal the ability to award damages to a private party in "refusal to supply" (section 75), and "vertical restraint" cases (exclusive dealing, tied selling and market restriction, section 77);
  • increasing fines for civil deceptive-marketing practices by 10 times or more for individuals (e.g., from a maximum of $50,000 for a first offence to $750,000) and by 100 times or more for corporations (e.g., from a maximum of $100,000 for a first offence to $10 million) while leaving criminal fines at existing levels (in the discretion of the court for conviction on indictment, but a maximum of $200,000 for conviction on summary conviction);
  • further toughening the civil misleading-advertising provisions to permit courts to order restitution to ultimate purchasers of the purchase price for the articles in question in civil deceptive-marketing cases, and to issue preserving orders to prevent the disposition of assets in order to frustrate attempts to satisfy an order for damages;
  • reducing the notification threshold, under the merger control provisions, of amalgamations involving one or more Canadian businesses to $50 million from $70 million for the combined size of the Canadian assets or revenues of the amalgamating businesses (while failing to update the thresholds for the assets and revenues of the target in a share or asset acquisition, which have since been updated by Regulation and are thus incorrect as they appear on the face of the statute).

Clearly, Bill C-454 as written would elicit some support, and much opposition, from many stakeholders. For example, the repeal of the criminal predatory-pricing and price-discrimination provisions has long been supported by many parliamentarians and members of the competition bar, as has the repeal of the airline-specific provisions. Giving the Tribunal the ability to impose fines for abuse of dominance is certainly not uncontroversial, and was included in Bill C-19, the previous government's attempt to amend the Act, and it had all-party support before it died on the order paper with the calling of a federal election. Similarly, Bill C-19 also proposed to significantly increase maximum fines for civil misleading advertising.That said, Bill C-19 did not propose that private parties be permitted to bring abuse cases before the Tribunal, much less that the Tribunal be empowered to award them damages in addition to imposing fines.

Also bound to be controversial would be the proposed deletion of the word "unduly" from section 45, thus criminalizing all agreements with any negative impact on competition. The new Bill proposes to add in an efficiency defence of sorts, but without the caveat found in the existing efficiency defence to mergers  that the efficiencies must be "greater than and offset" the anti-competitive effects of the merger and not otherwise attainable. Given the Commissioner's ongoing review of section 45 with a view to creating a criminal per se prohibition of "hard-core" cartel behaviour, as well as a companion civil provision to cover otherwise anti-competitive agreements, not to mention the work of the Competition Policy Review Panel (due to report in June), it is difficult to imagine that such a proposal will survive review in Committee.

Bill C-19 would also have given the Commissioner the ability to launch industry-wide investigations, without grounds to believe that an order should issue from the Tribunal or that an offence had been committed. Again, however, that aspect was not uncontroversial, as many in the petroleum industry in particular remember the thirteen-year investigation by the Restrictive Trade Practices Commission into price-fixing in that industry in the 1970s and 80s, which failed to uncover any illegal behaviour.Concerns include the high public and private cost of such studies, the lack of necessity for such powers of investigation, the need for procedural safeguards and the risk that such inquiries would become "politically charged"-not to mention the practical problem that such investigations would require additional resources that the Bureau simply does not have.

Because Bill C-454 is a private member's bill, its chances of becoming law in its current form are inherently slim - but anything can happen with a minority government.  The bill has received support from Members of all three opposition parties, and its progress in Committee deserves to be followed closely in the months ahead. Hearings before the House Standing Committee on Industry, Science and Technology have not yet been scheduled.

1No specification of the circumstances that would give rise to such grounds are given, and presumably it would not be necessary to believe that an offence has been committed or that grounds exist for an order under the civil provisions.

2Section 4.1 exempts collective bargaining over commissions by travel agents with a dominant domestic air carrier (at least 60% of revenue passenger-kilometres from domestic services in a given year) from the prohibitions against conspiracy and price maintenance under sections 45 and 61, respectively.

3Currently, only the Commissioner can bring an abuse-of-dominance case before the Tribunal.  Private parties have no right to do so, although they can bring an application based on refusal to supply (s.75), exclusive dealing, tied selling or market restriction (s.77) before the Tribunal, with leave of the Tribunal.  Moreover, the Tribunal is not currently empowered either to issue fines or to award damages to any party.

Bill C-11: Changes to the Canada Transportation Act

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.

Notice to the Minister is to contain the same information as is provided to the Competition Bureau (the Bureau) under s. 114(1) of the Competition Act, as well as information on the public interest as it relates to national transportation, as required by the Minister's (non-statutory) guidelines. These guidelines have yet to be published and will be elaborated in consultation with the Bureau.

Under the revised CTA, the Minister has forty-two days to decide whether the transaction raises "issues" (formerly "concerns") with respect to the public interest as it relates to national transportation. If so, he or she can direct the Agency to examine the issues, or may appoint someone else for that purpose. The Agency or other appointee must report back within 150 days, unless the Minister allows for a longer period of time. The report now becomes public immediately after it is given to the Minister.

Previously, on receipt of the report, the Minister would inform the Commissioner and the parties of his or her concerns, and state which part of those concerns the parties should address with the Commissioner. Now, however, the Minister first consults with the Commissioner as to where their respective concerns overlap, then instructs the parties whom to address in respect of their respective concerns. The parties are to inform each of the two officials what measures they are willing to undertake to tackle the issues. The Minister consults with the Commissioner as to the adequacy of the parties' commitments, and may then recommend to the Governor in Council to approve the transaction.

Under the old CTA, if a party completed or was about to complete a notifiable air transportation transaction without the requisite approval from the Governor in Council, the Minister could recommend to the Governor in Council (after consulting with the Commissioner) to issue an order directing the parties to take action to protect the public interest. Now, the Minister instead applies to a superior court for such an order, with respect to any transportation undertaking.

The amendments described above broaden the scope of the potential "public interest" review to include transactions involving all types of transportation undertaking, rather than only air transportation, as before. The amendments also clarify that when the Minister has ordered a public interest review, the Minister - and not the Commissioner - will have the last word. It remains to be seen whether public interest reviews will be used to block such transactions on political grounds, or to enable politicians to approve of transactions which the Commissioner would reject.

Update on Bill C-11

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.

Proposed amendments to the Canada Transportation Act: Uncertainties exacerbated

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.

Currently, section 56.1 of the CTA provides for the review by the Canadian Transportation Agency of transactions involving an "air transportation undertaking" if the parties to the transaction are required to file pre-merger notifications under the Competition Act1. The proposed changes would extend these reviews to transactions involving all types of transportation undertaking. After an initial appraisal, the Minister would recommend a CTA review if any "public interest" issues are raised by the transaction. However, the terms "public interest," "air transportation undertaking," and "transportation undertaking" are never explained or defined in the Act.

The failure to define "transportation undertaking" raises uncertainty as to exactly what companies are potentially subject to the CTA review provisions. This is particularly concerning for transactions involving a company that engages in some transportation activities, but where it is questionable whether the company as a whole merits the characterization "transportation undertaking."

The failure to define "transportation undertaking" extends an existing weakness of the CTA, namely the failure to define "air transportation undertaking." The CTA was already open to criticism for imposing onerous ownership and control requirements2 on air transportation undertakings, but failing to make clear what companies fall into this category. The proposed amendments maintain the requirements but do nothing to clarify their application.

Similarly, "public interest" is a vague term that might easily be used to cloak arbitrary, politically motivated intervention on the part of the government. The proposed amendments suggest that the Minister may create guidelines respecting what information the parties to a transaction should submit for the assessment of "public interest." Unless and until such guidelines are created, however, companies contemplating a merger or acquisition can only guess whether the transaction will raise "public interest" issues, thus triggering the CTA review process and subjecting it to a requirement of Federal Cabinet approval.

The proposed amendments will significantly broaden the Government's ability to review-and potentially block-many transactions that may have historically been subject only to Competition Bureau review. Furthermore, the ambiguity of the terms "public interest" and "transportation undertaking" in the proposed amendments suggest that Bill C-11 could have far-reaching and potentially significant implications for all businesses that engage in transportation activities. Meanwhile, existing uncertainty about what companies are "air transportation undertakings," and thus potentially subject to the Canadian ownership and control requirements, remain unresolved. In terms of mergers and acquisitions, the proposed changes create new challenges, rather than address old ones.

The second reading of Bill C-11 is expected to occur before the end of June.


1] Generally, parties are required to notify the Competition Bureau in respect of a transaction if the parties (including affiliates) have, on a combined basis, either assets in Canada or annual gross revenues from sales in, from or into Canada exceeding $400 million and the value of the assets in Canada of the operating business being acquired or the gross revenues from sales in or from Canada generated by those assets exceeds $50 million.  In the case of share acquisitions, the person acquiring the shares must also acquire an interest in the corporation exceeding either 20% (for public corporations) or 35% (for private corporations) or, if such threshold is already exceeded, 50%.

2] Section 56.2(1) of the current Act (s. 53.2(1) under the proposed amendments) requires that any merger or acquisition of an air transportation undertaking must result in an undertaking that is Canadian, that is to say, that 75% of its voting interests be owned by Canadians and that it be controlled in fact by Canadians.

U.S. Merger Notification: Gates, Manulife Face Big Civil Penalties for Hart-Scott-Rodino Violations

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

Changes to fees, thresholds and service standards will significantly affect businesses dealing with the Competition Bureau

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:

  • an increase in the transaction-size threshold for merger notification from C$35 million to C$50 million;
  • the doubling of fees for merger notification filings and Advance Ruling Certificates (ARCs) from C$25,000 to C$50,000;
  • the coming into force of a recent amendment to the Act providing for legally binding written opinions from the Commissioner of Competition (the "Commissioner") on proposed business conduct; and
  • an increase in fees for written opinions from the Commissioner.

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.

Amendments to Merger Notification Threshold

Advance notification of mergers is required under the Act if two thresholds are met: the size-of-parties threshold; and the transaction-size threshold. (A shareholding threshold is also applicable to share acquisitions.) The size-of-parties threshold remains unchanged. Merging parties must have, on a combined basis and including their respective affiliates, C$400 million in assets in Canada or revenues from sales in, from or into Canada. However, the transaction-size threshold has been increased. Prior to April 1, the transaction-size threshold was C$35 million in assets of the acquired operating business in Canada or revenues from sales in or from Canada generated by those assets. The new regulation raises this threshold to C$50 million and as a result, some smaller transactions will no longer be caught. There has not been a corresponding increase in the C$400 million size-of-parties threshold, because the Bureau views this threshold as high in comparison to the size of the Canadian economy and threshold levels in other jurisdictions such as the United States, where at least one of the merging parties must have US$100 million or more in annual sales or total assets worldwide and the other party, US$10 million or more worldwide.

Changes to Fees and Service Standards

Bureau fees are set by government policy and vary according to the service provided. Previous fees and service standards for merger notification, advance ruling certificates and advisory opinions were implemented in November 1997. The current fee increase has been justified as necessary to cover more of the costs of merger review and the written opinions process.


The Bureau's new policy doubles the present fee from C$25,000 to C$50,000 with respect to requests for ARCs and merger notifications. According to the Bureau, this increase is required due to the increased costs of merger review since 1997, including salaries and associated costs, direct Bureau support (i.e., dedicated economists in the Competition Policy Branch and dedicated legal staff), expert and legal costs and ongoing investment in technology and other process improvements.

The Bureau will "grandfather" requests relating to transactions for which notifications or ARC requests were filed prior to April 1, 2003. Requests may also be made for binding opinions on the notifiability of a proposed merger for a fee of C$5,000. The applicable service standard for requests related to notification is two weeks for non-complex issues and four weeks for complex issues. The Merger Notification Unit will continue, however, to provide informal, "over the phone"-type advice on relatively simple notification issues at no charge.

The Bureau's revised Fee and Service Standards Handbook (the "revised Handbook") states that parties seeking an opinion respecting a proposed transaction should request an ARC. This raises the question of how the Bureau will manage a request for a comfort letter stating that the transaction does not raise any significant competition issues where the transaction is not notifiable. Based on the Bureau's public statements to date, it appears that the Bureau may well require that parties to a non-notifiable transaction request an ARC at a cost of C$50,000, leaving no opportunity for seeking a lesser form of comfort (e.g., a form of non-binding no-action letter) at a substantially lower fee. A foreclosure of the comfort letter option by the Bureau would be an unfortunate development. It would certainly "chill" the existing incentive for voluntary notification by merging parties of proposed mergers that are not notifiable, but raise potential competition issues.

The service standards for substantive merger review remain unchanged. The maximum timeframes for review of transactions classified by the Bureau as non-complex, complex and very complex, respectively, are two weeks, ten weeks and five months. Some members of the competition bar had advocated convergence of time periods with those in the European Union (one month for transactions not raising material issues, four months for transactions raising significant competition issues). However, during the public consultation, Bureau staff noted that the time periods in the European community were overly optimistic, as witnessed by the European Commission's current proposal to increase timelines for merger review under certain circumstances.

Non-Merger Opinions

Fees for written opinions relating to proposed business conduct (other than mergers) as well as timeframes for such opinions have also increased. The Bureau has justified both changes on the basis that with the coming into force of section 124.1 of the Act, which permits the Commissioner to issue legally binding opinions, the provision of opinions is expected to be more costly and time-consuming than was previously the case for non-binding advisory opinions. In particular, the Bureau expects to need more frequent and formal legal and economic consultation to support its opinions.

The fee increases depend on which section of the Act is implicated by the request for a written opinion. Opinions on misleading representation and deceptive marketing practice provisions, which previously cost C$500, are now C$1,000. The service standard for the review of a non-complex case in that category has increased from eight days to two weeks and for a complex case from thirty days to six weeks. The fee for an advisory opinion on "all other" sections of the Act used to be C$4,000 with a service standard of four weeks for non-complex cases and eight weeks for complex. Under the new Fees and Service Standards schedule, opinions relating to sections 45 to 51 (including conspiracy and price discrimination) and section 79 (abuse of dominance) now cost C$15,000. The service standard for non-complex cases is six weeks and for complex cases, ten weeks. The service standard has therefore increased by two weeks in each case, while the cost has increased (astronomically) from C$4000 to C$15,000. With respect to the remaining provisions of the Act (not including ARC requests or opinions regarding merger notification requirements), the fee is C$5,000 and the service standard is four weeks for non-complex and eight weeks for complex. This represents a 25% increase in the fees, while the service standard has remained the same.

If you would like any further information on these changes, please contact a member of the Competition Group. The Bureau's revised Fee and Service Standards Handbook may be found at

Other Developments

Bureau Will Apply Identical Standards to Online Representations and Traditional Media

On February 18, 2003, the Competition Bureau (the "Bureau") released its Information Bulletin on the Application of the Competition Act to Representations on the Internet (the "Bulletin"). The Bulletin is designed to ensure that businesses that are making online representations understand their responsibilities under the misleading representation and deceptive marketing provisions of the Competition Act (the "Act"). The Bulletin, which followed a consultation process with stakeholders, details the Bureau's approach to the application of the Act to online representations. The Bureau's position is that the Act applies equally to false or misleading representations, regardless of the medium used, and that the same basic principles that govern truthfulness in traditional advertising and marketing practices apply to their online counterparts. The Bureau does not believe that the enforcement of the Act will bias business activity either toward or away from the Internet.

Commissioner Shares Views and Encourages Input on Canada's Changing Competition Regime

On February 26, 2003, Konrad von Finckenstein gave an address to the Insight Conference on Canada's changing competition regime. He briefly outlined the changes brought about by Bill C-23, which became law in June 2002, and discussed the process that is currently underway to develop the next round of proposed amendments to the Act. The Commissioner noted, among other things, the considerable support for a two-track approach to the conspiracy provisions, the possibility of introducing administrative monetary penalties into several provisions of the Act, the possible extension of private access to certain civil provisions, as well as possible changes to the current criminal pricing provisions. The Commissioner ended his address by encouraging stakeholders to actively participate in the upcoming consultation process.

Interpretation Guideline Outlines Bureau's Approach to Ordinary Course Acquisitions Exemption

The Bureau recently released its Interpretation Guideline on the exemption for acquisitions in the ordinary course of business. Paragraph 111(a) of the Act exempts certain acquisitions in the ordinary course of business from notification. The exemption was enacted for the benefit of large purchasers that buy real or personal property over the value of C$35 million for use in their ordinary business operations. The Guideline outlines the Bureau's method of determining whether an acquisition of real property or goods qualifies for the exemption.