Continuing the recently stepped-up pace of enforcement actions at the Competition Bureau, the Commissioner of Competition filed a notice of application with the Competition Tribunal on January 24, 2011 seeking to undo the acquisition of a secure landfill site in northeastern British Columbia. This is the first challenge to a merger since 2005, but it follows recently launched and/or settled cases against credit card companies, spa retailers, a mobile phone provider and real estate agents. The merger challenge raises a number of noteworthy issues, based partly on the theory of the case and partly on the circumstances giving rise to it. Most merger cases are based on allegations that the transaction will substantially lessen competition, whereas this case alleges that competition will be substantially prevented. In addition, this transaction fell below the threshold for mandatory pre-merger notification and is therefore a useful reminder that the Commissioner has the ability to review all mergers, not just reportable ones.
CCS Corporation ("CCS") operates the only two secure landfills in British Columbia. These sites accept hazardous waste of the type generated by oil and gas producers in northeastern British Columbia. Complete Environmental Inc. ("Complete") was poised to enter the secure landfill business by opening a competing site, Babkirk Secure Landfill ("Babkirk"), in close proximity to one of the CCS secure landfills. Prior to opening Babkirk, the owners of Complete sold their shares in the company to CCS, resulting in Complete (and Babkirk) becoming a wholly-owned subsidiary of CCS.
The CCS/Complete transaction was not a notifiable transaction under Part IX of the Competition Act, which requires all merger transactions that exceed certain monetary thresholds to be reported to the Bureau and a 30-day waiting period to expire prior to closing. In this matter, the Bureau learned of the transaction, examined the potential competition law issues, and advised the parties that there were concerns. CCS agreed to "hold separate" the Babkirk business from its other assets pending a resolution of those concerns if it could complete the transaction. The transaction was completed on January 7, 2011.
Basis for Commissioner's Concerns
In the notice of application, the Commissioner asserts that CCS already operates the only two secure landfills in the province, and that the Babkirk Landfill would, once operational, have provided competition to CCS and likely resulted in lower tipping fees for oil and gas producers. By acquiring Complete, the Commissioner alleges that CCS prevented competition substantially by ensuring that customers did not have the option of switching to a competing secure landfill. The application also details the high regulatory barriers and the significant costs involved in opening a secure landfill, which underscore, in the Commissioner's view, the low likelihood of another competitor entering the market to offer a competing service. Complete had already spent approximately $1 million to secure the necessary approvals to open its landfill.
The Commissioner also relies on documents obtained from CCS that provide the buyer's views of the likely impact of the new landfill on its business. Some of the CCS documents indicate that CCS projected a significant loss in revenue (through lower volumes and lower tipping fees) once Babkirk began operations. CCS, according to the documents, determined that the best course was to buy Babkirk and operate it as a secure landfill or to buy it and not open it at all, thereby depriving the market of additional capacity and a new competitor.
The Commissioner is seeking an order from the Competition Tribunal dissolving the merger or requiring CCS to dispose of Complete (or the Babkirk landfill) or other appropriate assets (i.e., one of the existing CCS landfills) to address the Bureau's concerns. The Bureau also wants the Tribunal to require CCS to provide at least 30 days' notice of any acquisition in the next five years that would not otherwise trigger pre-merger notification under the Competition Act.
Significance of the Application
Most allegations of anti-competitive conduct are based on the theory that competition is being (or will be) substantially lessened. In this case, the Commissioner is asserting that the transaction will prevent competition substantially. The Commissioner believes that CCS, by eliminating a competitor before it begins operations, is depriving its customers of any leverage to negotiate lower rates with CCS and an independent Complete. If this case proceeds to a hearing and a decision, it will be beneficial to gain the insight of the current members of the Tribunal on the scope of the "prevent" issue. In a 2001 decision involving landfill sites, the Tribunal ordered the divestiture of a landfill site after concluding that its acquisition substantially lessened and prevented competition.
This case also provides a stark reminder of two key facts:
- Just because a transaction is not subject to mandatory pre-merger notification does not mean that the Bureau will not review it. The Bureau monitors the business press for transactions and also learns of transactions from affected customers and suppliers who call to express their concerns.
- Companies must be very careful in their use of language when preparing internal assessments of potential transactions, because they could end up in the hands of the Competition Bureau. A competition law compliance program which educates staff about competition law sensitivities is one way to minimize the risk of this taking place.
CCS, Complete, and the former shareholders of Complete have 45 days to submit responses to the Commissioner's application. Ogilvy Renault will continue to monitor developments in this case.