On March 2, 2009, Canada’s Competition Bureau published the final version of its Bulletin on Efficiencies in Merger Review. Although the Bureau’s existing Merger Enforcement Guidelines (“MEGs”) generally describe the Bureau’s analytical framework in assessing efficiencies, the Bulletin is intended to build upon the MEGs by providing practical guidance on the Bureau’s enforcement approach to efficiencies in merger review.
Under the Competition Act, a merger transaction may generally proceed where efficiencies resulting from a transaction are greater than, and will offset, any anticompetitive effects associated with the transaction. More specifically, an efficiencies argument may be successful where merging parties can establish that efficiencies are likely to occur, are or will be brought about by the merger, are greater than and offset the anti-competitive effects of the merger, and would not likely be achieved if the merger was prevented by an order of the Competition Tribunal under section 92 of the Act.
The Bulletin confirms that, prior to litigating efficiency claims before the Tribunal, the Bureau will itself typically assess the validity of such claims. To assist the Bureau in its assessment, the Bulletin encourages merging parties to submit detailed and comprehensive information to substantiate alleged efficiency gains and deductions from gains in efficiency (such as anticipated costs of merger implementation). As the Bureau typically uses economists and industry experts to assist in its evaluation of efficiency claims, detailed financial and related information is also required. The Bureau may also request physical access to facilities and to documents and information from operations-level personnel who can address, among other matters, how their business is currently run and areas where efficiencies would likely be realized. The Bulletin encourages the parties to submit the requisite information to the Bureau as early as possible in the merger review process. Early access to this information enables the Bureau to assess efficiencies arguments in a timely manner, prepare follow-up information requests, and, subject to confidentiality restrictions, test the claims made by the parties during its market contacts in connection with the merger.
The Bulletin also notes that the Bureau’s current enforcement policy on efficiencies follows the direction provided by the Tribunal and the Federal Court of Appeal in Superior Propane.
- On the issue of whether cost savings likely to result from substantiated efficiency gains should be taken into account in Canadian merger investigations, the Bureau will consider whether such cost savings offset the likely anti-competitive effects of a merger in its analysis of the efficiencies exception found in section 96 of the Act only – it will not generally consider such cost savings in the context of evaluating efficiency gains under section 92.
- On the specific issue of weighing the trade-off between efficiency gains against the likely anti-competitive effects of the merger under section 96, the Bureau will adopt the “balancing weights standard”, i.e., any increase in surplus arising from the efficiency gains of a merger is to be balanced against the deadweight loss resulting from the likely anti-competitive effects of the merger and, where appropriate, some portion of the associated transfer of surplus from consumers to producers, if any.
The Bulletin also clarifies the Bureau’s approach to dynamic efficiencies. The Bureau will consider dynamic efficiencies in its analysis, and is likely to put more importance on dynamic efficiencies in concentrated industries characterized by rapid technological change. Dynamic efficiencies are assessed, when possible, on a quantitative basis (i.e., decrease in production costs as a result of innovation), although they will be assessed on a qualitative basis in the absence of quantitative information.
Finally, the Bulletin confirms that, as a general rule, the efficiencies trade-off analysis will weigh gains in efficiency that benefit the Canadian economy against the anticompetitive effects of a transaction in Canada. For example, productive efficiency gains achieved at the parties’ facilities located outside of Canada that do not benefit the Canadian economy would generally not be considered, as such efficiencies are not considered to be efficiency gains for the purpose of section 96 of the Act.