Clarity or Confusion: Competition Bureau Issues Revised Merger Enforcement Guidelines
Last week, the Canadian Competition Bureau (the “Bureau”) released its revised Merger Enforcement Guidelines (the “MEGs”). The MEGs provide an overview of the Bureau’s enforcement approach and were last revised in 2004. While the revised MEGs are helpful in that they address certain issues in more detail than was previously the case, they do depart from the established analytical approach to assessing the potential competitive impact of mergers. Some of the key areas addressed by the revised MEGs include:
- What constitutes a “merger”;
- Minority interests transactions and interlocking directorates;
- Non-horizontal mergers; and
- The role of market definition.
Expanded Definition of “Merger”
The Competition Act (the “Act”) defines a merger to include the acquisition of a “significant interest” in the whole or part of a business. The revised MEGs provide an expanded discussion of when the Bureau will view transactions where control is not acquired as nonetheless constituting an acquisition of a “significant interest” in the target.
Specifically, the revised MEGs provide a list of factors that the Bureau may consider when assessing whether a minority shareholding has material influence resulting in the acquirer having significant control over the target. For example, the Bureau will consider the nature of the voting rights acquired, the extent of the acquirer’s influence over operations of the target, the acquirer’s ability to access competitively-sensitive information about the business, etc. In this regard, the MEGs state that no single factor is determinative, and that the Bureau will consider this issue on a holistic basis.
Minority Interest Transactions and Interlocking Directorates
On this issue, the MEGs list the various factors the Bureau may consider when assessing the competitive effects of a merger involving interlocking directorates and minority shareholdings. In these situations, the Bureau will consider whether the interrelationship between the firms could result in the target competing less aggressively, facilitate interfirm coordination, or otherwise have a negative impact on competition.
Non-horizontal mergers (which include vertical and conglomerate mergers) involve firms that do not supply competing products, but who may have supply-side relationships. Under the revised MEGs, the Bureau’s analysis focuses on whether the merged firm can limit or foreclose a competitor’s access to necessary inputs or markets, or could attempt to bundle/tie products in a manner that negatively affects a competitor’s ability to compete.
Unfortunately, the revised MEGs provide little information as to the type of information the Bureau will require from parties to assess the hypothetical effects of non-horizontal mergers. From our experience, information requests by the Bureau have tended to be broad and costly in these types of cases and it would be beneficial to have some additional guidance in this area.
The most significant change to the MEGs is the de-emphasis of market definition in the Bureau’s merger review process. In this regard, the revised MEGs state that market definition is now merely an analytical tool that may or may not be used depending on the circumstances. At the same time, the MEGs go on to state that market definition generally sets the context of the Bureau’s assessment of the likely competitive effects of a merger.
Besides being unclear as to role of market definition, the MEGs state that, in addition to considering the non-exhaustive factors listed in the Act, the Bureau reserves the right to employ other economic and analytical tools depending on the facts of each case as well as the availability of qualitative and quantitative evidence.
While the revised MEGs provide useful guidance regarding the Bureau’s enforcement approach to minority interest transactions, interlocking directorships, as well as non-horizontal mergers, they impart potentially significant uncertainty regarding the manner in which the Bureau will assess the competitive impact of mergers going forward.
While the Bureau’s stated analytical approach may be consistent with that recently adopted by US enforcers, it may be inconsistent with the language of the Act and Canadian caselaw on point. The fact that the Bureau has left its analytical approach open-ended imparts additional uncertainty to the merger review process. What remains to be seen is whether the enforcement approach outlined in the revised MEGs, will hold when challenged in a contested merger case.