Canada adopted a two-stage merger review process on March 12, 2009 following amendments to the Competition Act contained in Canada’s recent federal budget. The amendments created a single form of pre-merger notification with a single, 30-day initial waiting period, eliminating the previous “short-form” and “long-form” notifications and their corresponding 14- and 42-day waiting periods. The Commissioner of Competition also gained the power to issue requests for supplementary information within that initial 30-day period, thereby extending the review period until 30 days following compliance with the request.
The Canadian Competition Bureau has released for public comment a draft of its Enforcement Guidelines on the Revised Merger Review Process, which describe the Bureau’s approach to the two-stage merger review process, including how it will seek to minimize the burden on parties of supplementary information requests. Amendments to the Notifiable Transactions Regulations have also been issued for public comment. The Regulations specify the content of the new, single form of premerger notification.
The new, two-stage merger review process is similar to that used in the United States, where requests for additional information, known as “second requests,” have been criticized for the significant costs – in both time and money – of compliance. The Bureau has taken note of this criticism and issued the Draft Guidelines, which provide much-needed guidance on the scope of supplementary information requests and their expected limited use.
Set out below is an overview of the changes to the pre-merger notification form as well as the Draft Guidelines.
THE NEW PRE-MERGER NOTIFICATION FORM
The Regulations prescribe the content of the pre-merger notification form. As such, amendments to the Regulations were needed to implement the recent amendments to the Competition Act that replaced the short- and long-form notifications with a single form. Assuming the proposed amendments are passed in their current form, the new merger notification form will closely resemble the old short-form notification, with two additional elements imported from the old long-form notification: (i) copies of legal documents to implement the transaction (i.e., the agreement of purchase and sale) and (ii) 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. This latter requirement is similar – though not identical – to the requirement in the United States to submit such internal assessments relating to competition (referred to in the US as “4(c) documents”).
INITIAL 30-DAY REVIEW PERIOD
The Draft Guidelines confirm that the initial 30-day review starts when a complete filing has been received by the Bureau’s Merger Notification Unit. During this initial 30-day period, the Bureau’s objective will be to determine efficiently whether a supplementary information request will be necessary to “conduct a sufficiently thorough assessment of the potential competitive impact of the proposed transaction.” The Draft Guidelines state that the Bureau encourages parties to engage in early consultations after submitting a merger notification in order to assist the Bureau in its assessment of the proposed transaction and its identification of issues which might require further inquiry.
SUPPLEMENTARY INFORMATION REQUEST
The Draft Guidelines clearly indicate that the Bureau does not expect the supplementary information request mechanism to be triggered frequently. However, in cases where such a request is necessary, the Bureau will notify the parties before the end of the initial 30-day period that such a request is forthcoming.
The Draft Guidelines also point out that the Commissioner will still remain able to seek an interim order from the Competition Tribunal under section 100 of the Competition Act to prevent the closing of a transaction, if the Commissioner requires additional time to complete a review of the transaction. However, since the Competition Act now provides for a possible second phase of the review process, the use of such interim injunctions to prevent the closing of transactions will likely diminish.
The Draft Guidelines describe various mechanisms through which the Bureau will try to streamline the supplementary information process.
The Bureau first indicates that it will be open to dialogue with the parties before issuing a supplementary information request, in order to determine how the scope of the request can be reasonably narrowed. This could include interviews with representatives of the parties. In addition, the Bureau considers that post-issuance dialogue to further narrow the issues or scope of productions will be the norm.
Scope of Supplementary Information Request
The Bureau acknowledges the significant costs of a merger investigation and, as such, the Draft Guidelines identify a number of restrictions that the Bureau will follow to limit the scope of supplementary information requests in all but exceptional cases:
- Limiting the number of custodians: The Bureau intends to limit to a maximum of 30 individuals the number of custodians to be searched in preparing a supplementary information request. (Predecessors, successors, secretaries and assistants are exempted from this limitation.)
- Limiting the time period: The default search period for hard copies and electronic records created or received by the parties will be limited to two years from the date of the supplementary information request.
- Review of back-up media: The Bureau will discuss this with parties on a case-by-case basis instead of specifying a standard number of back-up tapes or a period for which information must be preserved.
- Additional measures to manage burden: The Bureau will consider adopting additional measures to minimize the burden of the merger review process on parties.
Internal Review and Approval
In order to ensure consistency, the Draft Guidelines provide that, prior to the issuance of a supplementary information request, a committee composed of four senior members of the Bureau and the Department of Justice will review and determine if the additional information requested is needed by the Bureau to complete its investigation and analysis. No supplementary information requests will be issued without the approval of the committee.
The Draft Guidelines also state that the Bureau will accept access to and copies of information and documents produced to a foreign agency as compliance with the relevant terms of a supplementary information request, provided that they are responsive to the Bureau’s request and that the “parties do not impose restrictions on the use of such documents that are unacceptable to the Bureau.”
Finally, the Draft Guidelines provide for an internal appeal procedure in cases where a party has challenged the scope of a supplementary information request or where the Bureau has alleged that a party has not fully complied with a supplementary information request. In both cases, a Senior Deputy Commissioner or Deputy Commissioner of a branch of the Bureau – other than the Mergers Branch – will review the appeal and render a decision within 7 business days after the party has provided all requested information.
The Draft Guidelines also outline the types of timing agreements that the Bureau will consider with the parties.
The recent amendments provide the Commissioner with new tools to encourage parties to comply with the merger review waiting periods. If parties take steps to complete the transaction prior to the expiry of the waiting period the Commissioner can apply to a court for an interim injunction to prevent closing. If parties close their transaction before the waiting period expires, a court can order the merger to be dissolved or impose financial penalties of up to $10,000 for each day of non-compliance. The Commissioner bears the burden of demonstrating non-compliance before any sanction can be imposed. Parties have an opportunity to demonstrate to a court that they have complied with the requirements of the Competition Act, or, where they did not comply, that they had good and sufficient cause not to comply.
The intent of the Draft Guidelines is clearly to provide some comfort to the merging parties on the use, scope and timing of the new supplementary information request and to deal with concerns expressed about this new process. It remains to be seen whether the supplementary information process will be used as infrequently as predicted by the Competition Bureau and if it will prove to be more successful than in the United States. The mechanisms put in place by the Draft Guidelines are surely a good step to bring more transparency and predictability to the process; however, despite assurances given by the Competition Bureau concerning the limited use and scope of supplementary information requests, it is nonetheless expected that this supplementary information process will drive up the cost of mergers and acquisitions raising more complex competition issues. Consequently, it is hoped that the Competition Bureau will use this new power sparingly.