Both the Competition Act and the Investment Canada Act thresholds for review of acquisitions involving Canadian businesses are expected to increase in 2016. 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$87 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 theInvestment Canada Act will increase to C$375 million for transactions closing in the remainder of 2016.
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$87 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 newly-renamed Department of Innovation, Science and Economic Development (“ISED”, formerly Industry Canada) has announced that the amount will increase from C$369 million to C$375 million for 2016 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) as defined in the Act, based on the book value of the Canadian business.
As announced in The Competitor last March, the threshold for review of direct acquisitions of control of non-cultural Canadian businesses by WTO investors who are not SOEs (defined as enterprises that are controlled or influenced by a foreign state) is C$600 million based on the “enterprise value” of the Canadian business. This threshold will increase to C$800 million on April 24, 2017, and eventually to C$1 billion. 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 (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. 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.