In an unprecedented move, the Federal Government has included as part of its 2009 Budget Implementation Act (Bill C-10) a radical overhaul of the Competition Act and a number of important amendments to the Investment Canada Act. Budget bills are enacted quickly and with few revisions. A new era in Canadian competition law is on the horizon.
This McMillan Bulletin discusses the proposed amendments relating to Mergers and their implications for business. The proposed amendments relating to Advertising and Marketing, Competitor Agreements and Pricing Practices are dealt with in separate Bulletins.
Bill C-10 does not amend the substantive merger provisions of the Competition Act or alter the remedies for anti-competitive mergers. However, the Bill proposes to discard two decades of successful merger review practice in favour of harmonizing the Canadian regime with the US merger review regime, a process that is widely viewed as imposing excessive burdens on merging parties.
The key element of the amendments is longer waiting periods, although there is also an increase in notification thresholds and reduction of the scope for post-closing challenges.
Longer Initial Waiting Periods for Notifiable Transactions
The Competition Act currently requires that transactions which exceed certain monetary thresholds be notified to the Commissioner of Competition using a prescribed short-form or long-form notification. Submission of a short-form notification triggers a 14-day no-close waiting period; if a long-form is used, the no-close waiting period is 42-days.
Bill C-10 proposes to move to a single form of notification. Once filed, the initial no-close waiting period will be 30 days (subject to early termination by the Commissioner) for all transactions unless a request for additional information is issued.
Uncertain, Longer Second Stage Waiting Period
Currently, if a short-form notification is filed, the Commissioner may during the 14-day waiting period require the parties to file a long-form notification. Once that filing is made, a new 42-day no-close waiting period commences. The Commissioner can also request additional information from the parties that is not required as part of the long-form and can seek a court order to compel production if it is not provided voluntarily. Those requests have no impact on the statutory no-close waiting periods.
The key change in Bill C-10 is that during the 30- day waiting period after making an initial filing, the Commissioner can elect to require the parties to provide any additional information that is “relevant” to an assessment of the proposed transaction. No form is prescribed and the Commissioner’s request is not subject to judicial oversight. The request results in a further noclose waiting period which runs until 30 days after the Commissioner’s requirements have been fully satisfied (subject to early termination by the Commissioner).
The Commissioner’s current power to seek court ordered production of documents and other information is not affected by the amendments.
Shortened Time Period in Which to Challenge Merger Post-Closing
Under the current law, transactions that are not notifiable, and those which are notifiable and close after the expiry of the no-close waiting periods, can be challenged at any time during the three year period following closing. Bill C-10 shortens the three year period to one year which will reduce the period of potential uncertainty for merging parties.
Increased Threshold for Notifiable Transactions
One of the thresholds that determines which transactions are pre-notifiable is the book value of the target’s Canadian assets and the sales generated from such assets. This “transaction size” threshold is currently C$50 million. Bill C-10 will increase this threshold to C$70 million with annual inflation adjustments thereafter.
Implications for Business
The increased threshold for notifiable transactions is a welcome development but since most mergers do not raise substantive issues the doubling of the no-close waiting period from 14 to 30 days is of concern.
The adoption of the proposed new merger control regime will impose additional costs and delays on international and Canadian transactions. This development risks reducing Canada’s international competitiveness, and is particularly unfortunate during the current economic upheaval. It is also inconsistent with the Recommended Practices of the International Competition Network (ICN), which is surprising after two of Canada’s Competition Commissioners have served as Chairs of the ICN.
The US “second request” process which is adopted by Bill C-10 has been controversial because it imposes extensive (and costly) burdens and delays on parties, particularly to comply with requests to produce electronic data and records. A recent report by the US antitrust agencies cited studies which found that the median cost to comply with a second request is US$3.3 million (and can be up to US$20-25 million for complex transactions), that hundreds and sometimes thousands (or tens of thousands) of boxes of documents must be produced, and that the time required to comply with a second request often is more than 6 months. With the proliferation of electronic records, second requests can now easily involve tens of millions of pages of records.
Our experience with information requests in crossborder transactions suggests that it is unlikely that the second requests would be identical in Canada and the US, which would compound the burdens. For international transactions, the longer initial waiting period in Canada also may complicate the preparation of notifications and increase transaction timelines.