Both the Competition Act and the Investment Canada Act thresholds for review of acquisitions involving Canadian businesses are expected to increase in 2015. The “size of target” threshold for Competition Act notification, if adjusted pursuant to the formula prescribed in the Act, will increase to C$86 million, although this increase has yet to be confirmed by the Minister and is subject to his discretion. Industry Canada has announced that the threshold for review applying to most direct acquisitions under the Investment Canada Act will increase to C$369 million for transactions closing in the remainder of 2015.
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 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, application of that formula would see the threshold increased to C$86 million for transactions closing in the remainder of 2015.
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 indexing for inflation. Subject to approval by the Minister, according to the amending formula, it is expected that the amount will increase from C$354 million to C$369 million dollars for 2015 for direct investments by WTO investors (or from non-Canadian WTO investors) in non-cultural businesses.
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. 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 for WTO investors (or non-Canadian WTO-sellers), regardless of the size of the assets of the Canadian business.
Legislation has been passed that would see the basis of calculation of the Investment Canada Act review threshold changed from book value to “enterprise value” and increased to C$600 million (gradually rising thereafter to C$1 billion). This change would not apply, however, to investments by state-owned enterprises. Implementation of the change is awaiting finalization of implementing regulations, but that process appears to be stalled. Unless and until the “enterprise value” threshold is implemented, the threshold for review of all acquisitions of control of a Canadian business (one with assets and employees or agents in Canada) remains based on the book value of the Canadian business.