The past year has been another exceptionally active one for merger transactions in Canada and internationally. In Canada, notification of at least 300 mergers has been given to the Competition Bureau (the “Bureau”) to date, and cross-border acquisitions, frequently requiring clearance by multiple antitrust agencies and close coordination between parties and local counsel, are increasingly common.
Against the backdrop of enhanced merger activity, the Bureau continues to review and redesign virtually every core aspect of its merger clearance process to “clarify fundamental merger principles.” The federal government has also appointed a Competition Policy Review Panel to review Canada’s competition and foreign investment laws, in response to criticism of increased foreign acquisitions of Canadian companies.
These continuing changes to Canada’s merger clearance regime, and potentially significant changes to the rules governing acquisitions and foreign investment in Canada, mean that merging parties and their counsel face an increasingly complex and moving regulatory landscape in seeking to successfully clear and complete transactions in Canada.
Competition Policy Review Panel
The most significant competition law development this year was the federal government’s creation in July of a Competition Policy Review Panel to review key aspects of Canada’s competition and foreign investment laws in light of a rapidly changing global economy and to ensure that they encourage “even greater foreign investment” and more Canadian jobs.
The five-member Review Panel’s “core mandate” is to review the Competition Act (the “Act”) and the Investment Canada Act (the “ICA”). The Review Panel is also charged with examining Canada’s sectoral restrictions on foreign direct investment – for example, in the airlines, financial services and broadcasting sectors. The Review Panel is to report back to the Minister of Industry in June, 2008 with concrete recommendations that could form the basis of legislative changes to the Act and ICA to “further enhance competition in Canada and ensure that the benefits of foreign investment are maximized.” As an over-arching objective, the Review Panel will advise on whether Canada’s investment framework should be updated to address national security concerns and issues relating to acquisitions by large foreign state-owned enterprises with non-commercial objectives.
Given the significant level of recent debate over foreign takeovers of established Canadian companies (e.g., Alcan, Inco and Hudson’s Bay), notably by the NDP and Liberals, the focus of the Review Panel may include the Act’s merger clearance rules, as well as existing ICA rules governing foreign investment in Canada (which requires that applications for review be made for investments in Canadian businesses that exceed certain monetary thresholds, with approval turning on whether the investment is of “net benefit” to Canada). Especially controversial are likely to be acquisitions in the natural resources and manufacturing sectors.
Bureau Merger Review Initiatives
The Bureau has commenced (or continues to carry out) a number of significant initiatives to review core aspects of its merger clearance policy. These include:
- Ex-Post Merger Review. The Bureau is conducting ex-post merger reviews of several significant, but unchallenged, completed transactions to determine whether a substantial lessening of competition has resulted in relevant markets affected and whether its conclusions in reviewing the mergers were appropriate.
- Merger Remedies Study. The Bureau is also conducting a review of past merger remedies, similar to those conducted by the U.S. Federal Trade Commission and the European Commission. The objective of the Bureau’s study is to determine whether past remedies were effective in addressing competition concerns, with an emphasis on evaluating behavioural and quasi-structural remedies. (While the Bureau prefers divestitures, merging parties may prefer to negotiate behavioural or quasi-behavioural remedies that do not require the outright sale of assets.)
- Technical Backgrounders. Finally, the Bureau continues to issue technical backgrounders that outline its analysis and rationales for conclusions in completed mergers, which are intended to give merging parties and their counsel increased guidance with respect to the Bureau’s merger review policies. The Bureau’s technical backgrounders, which mirror the methodology of its Merger Enforcement Guidelines (focusing on key factors including post-merger concentration, barriers to entry, countervailing power and remaining competition), have added some degree of insight into the Bureau’s analytical approach to merger review. For example, in one case (Maytag/Whirlpool), the Bureau decided not to challenge the transaction despite a significant post-merger share based on effective remaining competition and buyer countervailing power. Ten backgrounders have been issued to date including in the steel (Mittal/Arcelor), consumer health care (Johnson & Johnson/Pfizer) and motion picture industries (Cineplex/Famous Players).
Some Final Remarks
The past year has been an exceptionally active one for mergers and has also been marked by significant Bureau activity, which continues to review and revise key elements of its merger clearance policy. At the same time, the federal government’s Review Panel is now engaged in an extensive review of Canada’s competition and foreign investment laws. The ultimate impacts of the Bureau’s current policy initiatives and the government’s review of fundamental aspects of competition law in Canada remain to be seen. What is clear, is that merging parties and their counsel currently face a moving (and currently politically charged) regulatory landscape in seeking successful review and clearance of their transactions.