Canada’s Competition Bureau has released three new guidelines relating to its merger review process under Part IX of the Competition Act. The first two guidelines discuss the Bureau’s approach to the disclosure of confidential information and the running of waiting periods in the context of unsolicited (hostile) bids. The third guideline discusses the completeness of notifications, in particular with respect to the meaning of “officers and directors” for non-corporate entities, and when information can be excluded from a notification on the basis of confidentiality.
Hostile Transactions: Disclosure of Information
The Bureau’s first guideline, Hostile Transactions Interpretation Guideline Number 1, discusses its confidentiality policy with respect to hostile transactions. Generally speaking, in deciding what information to share with parties to a transaction, the Bureau is guided by section 29 of the Act as well as by its Information Bulletin on the Communication of Confidential Information under the Competition Act. For non-hostile transactions, the Bureau has expressed its willingness to share information with both parties by providing its complexity designation, anticipated timing of review, date upon which a party has certified completeness of its supplementary information request (SIR), and the Bureau’s preliminary and final conclusions regarding the competitive effects of the transaction.
In hostile bids, the Bureau acknowledges that there are particular sensitivities to sharing information with parties to the transaction. In the interests of fairness, the Bureau has determined that where it shares pertinent information with one party to a hostile transaction it will take all necessary steps to equitably disclose such information to the other party in order to prevent information imbalances that could put that party at a disadvantage. The Bureau remains mindful that this policy may not always be implemented in a straightforward way and so it will strive to tailor its application on a case-by-case basis. In our experience, the policy of equitable disclosure in hostile transactions means the Bureau tends to keep its cards close to its chest in reviews of hostile transactions.
Hostile Transactions: Running of Waiting Periods
The Bureau’s second Hostile Transactions Interpretation Guideline discusses its policy with respect to timelines under subsection 123(1) of the Act. Normally, in a friendly transaction, subsection 123(1) of the Act provides for an initial 30-day waiting period after a complete notification has been supplied to the Bureau, by all parties to the transaction. If the Commissioner of Competition requests additional information under subsection 114(2) of the Act by issuing a “supplementary information request” or SIR (a so-called second request in the U.S.), the waiting period is extended by a further 30 days following certification (often several months later – if ever) by all parties that their responses are complete.
The Act provides specific guidance for waiting periods in the context of unsolicited or hostile bids. Where the Commissioner receives a Part IX notification from a bidder prior to receiving information from the target, subsection 114(3) of the Act requires the Commissioner immediately to notify the target of the bid that information has been received from the bidder. The target corporation is then required to supply the Commissioner with the prescribed information within 10 days thereafter. Section 123(3) specifies that where subsection 114(3) applies, the waiting periods are determined without reference to the day on which the target supplies information.
The Bureau’s new Guideline provides information on its policy with respect to three different scenarios that can arise when initially hostile bids turn friendly:
- Proposed hostile transaction turns friendly within the initial 30-day period: If an unsolicited bidder submits a Part IX notification to the Commissioner, and during the initial 30-day waiting period the transaction ceases to be hostile, the Bureau considers this to have no effect on the running of the waiting period.
- A hostile transaction turns friendly after the issuance of a SIR but before the bidder has certified completeness of its response to the SIR: After the bidder certifies completeness of its response to the SIR, the Bureau will make an assessment of whether the proposed transaction remains hostile. If it is, the 30-day waiting period applies following the bidder’s certification of completeness and the Bureau’s acceptance of completeness regardless of whether the target has complied. However, if the Bureau determines that the proposed transaction has turned friendly by the time the bidder certifies completeness, the waiting period will not commence until all parties, including the target of the transaction, have submitted certified complete responses to the Bureau’s SIRs.
- A proposed unsolicited transaction ceases to be an unsolicited bid after the commencement of the subsequent 30-day waiting period: In a situation where a bid turns friendly after the bidder has certified completeness of the response to the SIR (i.e., the second 30-day waiting period has already commenced), the Bureau is of the view that this will have no effect on the running of the waiting period under subsection 123(1)(b) of the Act.
Notifiable Transactions Regulations and the Completeness of Notification
The Bureau’s third new Guideline highlights its position on the completeness of a notification made pursuant to the requirements of section 16 of the Notifiable Transactions Regulations. The Guideline provides clarity in two areas. First, it specifies that a “director” or “officer” of an unincorporated entity is someone who occupies a position of authority similar to that of an officer or director in a corporate entity. Second, the Guideline clarifies the Bureau’s position on when information can be omitted from a notification on the basis of the statutory exemption in subsection 116 applicable to information which “cannot be supplied…because of a confidentiality requirement established by law”. For the purposes of subsection 116 of the Act, the Bureau is bound by statutory or common law confidentiality requirements (such as solicitor-client privilege). Although not mentioned in the Guideline, one imagines that certain information related to, for example, customers and sales in defence-related industries might be covered by other legislation preventing non-authorized disclosure. The purpose of the Guideline, however, is to make it clear that the Bureau does not consider that it is bound by contractual confidentiality provisions. Parties that do not wish to disclose certain information not protected by privilege or other statutory or common law confidentiality obligations must provide evidence as to why the protections available in section 29 of the Act are insufficient to protect their commercial interests. Since most contractual confidentiality provisions contain an exemption when disclosure is required by law, one would think that actual conflict between such provisions and the notification obligations in Part IX of the Act should be fairly rare. – certainly the Bureau has now expressed that view.