Principal proposed changes
On June 27 2011 the Competition Bureau released "modestly revised" Merger Enforcement Guidelines for public comment. The release is the latest step in a consultation process that began in September 2010 and is expected to be completed in late September 2011. The guidelines, which establish the analytical framework for the bureau's review of proposed mergers, were last updated in 2004. The latest revisions are intended to ensure that the guidelines reflect current bureau practices, recent case law and updated economic thinking in the area. This update highlights the principal proposed changes and identifies their importance to potential merging parties.
The guidelines were first issued in 1991 and revised in 2004. In September 2010 the bureau issued a discussion paper to solicit the views of stakeholders on whether the guidelines should be revised and, if so, the extent of those revisions (for further details please see "Merger developments at the Competition Bureau"). Following consultations across Canada and with foreign antitrust agencies, as well as extensive internal evaluation of the current guidelines to determine whether they reflected actual agency practice in reviewing mergers, in February 2011 the bureau announced that it would undertake "moderate revisions" of the guidelines.
Principal proposed changes
If adopted, the main changes proposed to the guidelines would not represent a significant shift in enforcement approach. Rather, the changes seek to offer greater clarity about the bureau's enforcement approach and, in certain cases, merely consolidate advice provided elsewhere into the document.
Long a starting point of merger analysis, the draft guidelines make clear that it is not necessary to start by defining relevant markets and, in certain cases, doing so may not even be necessary. If adopted, this shift will afford additional flexibility to the bureau in the manner in which it analyses a proposed merger and mirrors changes adopted in the United States in 2010.
The bureau has expanded its treatment of the economic theory behind a unilateral effects case (ie, one where concerns arise regarding the potential market power of the merged entity acting on its own), and clarified that even if the products of the merging parties are not the first and second choices of a large number of buyers, there can still be unilateral effects concerns.
Partial interests and interlocking directorships
The Competition Act defines a 'merger' as the acquisition or establishment of control over, or a significant interest in, the whole or part of a business of a competitor, supplier, customer or other person. The draft guidelines expand on the existing explanation of what constitutes a significant interest, which is the ability to influence materially the economic behaviour of a business, and includes a list of factors relevant to evaluating influence. The draft also outlines how the bureau will assess whether a partial interest or interlocking directorship could result in a substantial lessening or prevention of competition.
When customers of the merged entity have countervailing power, this can help to constrain the exercise of market power by the merged entity and prevent a substantial lessening or prevention of competition. The draft guidelines expand on the current discussion of this topic and clarify that parties must submit a credible theory about the potential exercise of countervailing power. The draft guidelines also incorporate the bureau's position on monopsony power and clarify that output restrictions are not a necessary precondition to a finding of monopsony power.
A vertical merger involves parties at different levels of the supply chain, as compared to a horizontal merger, which involves competitors at the same level. In vertical mergers, the bureau has clarified that its focus will be on potential foreclosure of access to inputs or markets by the merged entity, and that it will examine whether the merged entity has the ability to harm its rivals, whether it has an incentive to do so and what impact the foreclosure has on competition.
The revised guidelines are intended to be a 'one-stop shop' for the bureau's merger review framework; therefore, the incorporation of previously disparate policy statements is a helpful development. The substantive changes do not represent a marked shift in enforcement policy, but do seem designed to afford the bureau additional flexibility in constructing its theory of the case by drawing on a range of economic tools. They also make clear the type of evidence that the bureau will expect merging parties to present in order to argue successfully that a merger will not substantially lessen or prevent competition.
The deadline for comments on the draft guidelines is August 31 2011. Subject to the extent of comments received, the bureau expects to release the final guidelines in late September 2011.
For further information on this topic please contact Kevin Ackhurst at Norton Rose OR LLP by telephone (+1 416 216 4000), fax (+1 416 216 3930) or email ([email protected]).