The Competition Tribunal recently released a decision denying an application by the Commissioner of Competition (“Commissioner”) seeking to delay Labatt Brewing Company’s takeover of Lakeport Brewing Income Fund. In so doing, the Tribunal provided some much needed guidance as to when the implementation of a merger transaction can be halted by the Commissioner.
On February 1, 2007, Labatt Brewing made an offer to buy all outstanding units of the Lakeport Brewing Income Fund. Both are important participants in the discount beer market. The parties sent the appropriate merger filings to the Competition Bureau and announced that the transaction was scheduled to close on March 29, 2007, after the expiry of the 42-day statutory waiting period.
The Bureau, for its part, classified the transaction as being “very complex” and indicated that it would need more time to conduct its review. And under its own service standards, the Bureau can take up to five months to review very complex cases.
As part of the transaction, Labatt and Lakeport offered to be bound by a time-limited hold-separate agreement (“HSA”) for a month post-closing, during which time the assets of Lakeport and Labatt would remain distinct. The Commissioner did not accept this HSA offer and instead pursued an application for an injunction under s. 100 of the Competition Act to prevent the closing of the transaction in order to allow more time for the merger to be reviewed. While the decision was of obvious importance to the parties and to the Commissioner, it was also of great interest to competition lawyers, as it was the first to come after Parliament had removed from s. 100 the condition that the Commissioner show that the transaction, if allowed, would “reasonably likely” result in a substantial lessening of competition.
At issue before the Tribunal was whether the Commissioner had met the test for an injunction, particularly whether it had established that, absent the order forbidding the closing, actions that are difficult to reverse would occur that would substantially impair the Tribunal’s capacity to remedy the merger if it was contested.
In answering the question, the Tribunal rejected the Commissioner’s argument that, if the merger took place, there could be no effective remedy because to try to undo the merger would be akin to “unscrambling eggs.” Instead, the Tribunal referred to the decision of the Federal Court of Appeal in Superior Propane, in which Justice Linden held that a merger is not like scrambled eggs. Rather, a merger can be broken up and competition can be restored, though it may be inconvenient and difficult to do.
The Tribunal also found that, while there was no longer a need to prove that the transaction would be reasonably likely to substantially lessen competition, this did not mean that competitive effects were removed entirely from the analysis. The test for an injunction still requires the Commissioner to show that, without it, the Tribunal would not be able to remedy any substantial lessening of competition that might occur. It is not sufficient to show that the merger cannot be undone; the Commissioner must show that closing the transaction, if allowed, would substantially impair the Tribunal from remedying any substantial lessening of competition.
Ultimately, the application was dismissed because the Commissioner failed to show that the acquisition prevented the Tribunal from imposing remedies which would sufficiently remedy any substantially lessened competition and that losing the possibility of forbidding the merger would substantially impair the Tribunal.
As a more overarching comment, the Tribunal expressed its view that, while s. 100 may have been amended to remove a key part of the injunction test, Parliament did not intend to make obtaining a s. 100 order a relatively simple matter based principally upon the Commissioner’s need for more time to examine the merger. Rather, it took the approach that s. 100 injunctions were extraordinary remedies to be granted sparingly.
The bottom line for parties to a merger is that, despite changes to s. 100, the Commissioner still has a relatively steep hill to climb. Parties to a very complex transaction might take comfort in this and approach the Competition Bureau with confidence when proposing a closing date that is within a reasonable time after the statutory 42-day waiting period.