Under the Competition Act, RSC 1985 c. C-34, the Competition Bureau (Bureau) reviews mergers to assess whether they are likely to substantially lessen or prevent competition in one or more relevant markets. As stated in its Merger Enforcement Guidelines (Guidelines), the Bureau generally makes its determination by assessing the competitive effects of the merger in those markets where each party to the merger supplies products that are substitutes between each other (Relevant Market).
In an effort to promote transparency around its processes and its analytical approach to merger reviews, the Bureau publishes Position Statements (Statements) on key transactions. As stated in their Guidelines and seen in their Statements, the Bureau considers various factors in their analysis. Although the Bureau emphasizes each review is fact specific and, accordingly, that Statements are non-binding, they can provide insight into the factors applied in a specific case.
In its most recent Statement, the Bureau discusses its concerns regarding the acquisition of one global provider of pharmaceutical products by another (Hospira Inc. and Pfizer Inc., respectively). These companies “overlap in the area of prescription pharmaceutical products administered in hospital and healthcare facilities [which are often members of group purchasing organizations]”.
In determining the Relevant Market, the Bureau analyzes the companies’ products at the “molecular level (or chemical compound level)” as well as the “format” in which they are supplied “(e.g,. injectable or tablet)”. Notably, the products included in their analysis encompass those currently in the market as well those in development. After finding the parties supplied (or would supply) some similar products (Products), the Bureau found that the effect of the merger would substantially lessen or prevent competition since it would lead to too few current and prospective competitors for the Products. In this respect, the Bureau emphasizes that there are substantial barriers to entry unique to the pharmaceutical industry. In order to resolve these concerns, Pfizer Inc. came to an agreement with the Bureau that it would sell three of its Products and one other Product Hospira Inc. had in development to a buyer approved by the Bureau.
In another recent Statement, the Bureau explains why it did not challenge a merger between two entities (H.J. Heinz Company and Kraft Foods Group) despite both parties supplying similar products (e.g., condiments, sauces, and dressings) and sharing a “competitive overlap”.
In determining the Relevant Market, the Bureau looked at the retail and foodservice sale of some similar products (e.g., barbeque sauce and pourable salad dressing). Despite both parties’ supplying the products, the Bureau found that such products were “highly differentiated” and “marketed to different tiers of consumers” based on an analysis of the elasticity of demand for each product, each party’s internal documents, as well as each product’s price and location within retail stores. This, in conjunction with the existence of several effective competitors and low barriers of entry, provided the Bureau with sufficient confidence that the merger would not substantially lessen or prevent competition.
The author would like to thank Nader Hasan, articling student, for his assistance in preparing this legal update.