Two key financial thresholds relevant to the review of proposed transactions under Canada’s Competition Act (CA) and Investment Canada Act (ICA) have now been increased for 2018.
On February 9, 2018, the Competition Bureau announced an increase in the CA’s “size-of-transaction” threshold—one of the two thresholds that together trigger mandatory notification of a transaction to the Competition Bureau—from CA$88 million to CA$92 million. This threshold can be reached on the basis of either the book value of assets in Canada acquired in a transaction, or by the gross revenues from sales in or from Canada generated by those assets. Additional proportional interest thresholds apply for acquisitions of shares, partnership interests or other forms of ownership, and special rules apply to amalgamations. Both the size-of-target threshold and a separate CA$400 million “size of parties” threshold (which does not change annually) must be surpassed for a transaction to be notifiable under the CA.
In addition, on February 10, the ICA threshold for review of proposed transactions involving the direct acquisition of a non-cultural Canadian business by a state-owned enterprise (SOE) of a World Trade Organization (WTO) member country was raised from CA$379 million to CA$398 million in book value of assets. This threshold governs whether an SOE transaction requires a pre-closing review by the Minister on the basis of “net benefit to Canada”. Other ICA thresholds are unchanged from those we last reported on in an October article. Specifically, for acquisitions by a non-SOE investor from most countries with a free trade agreement with Canada (including all European Union countries, the United States, Mexico and South Korea, for example), the threshold is CA$1.5 billion measured by the “enterprise value” of the target. Enterprise value is equal to the market capitalization for a public company transaction, or its purchase price for a private company transaction or asset acquisition, added to total liabilities less cash and cash equivalents. For other WTO investors, the threshold is CA$1 billion in enterprise value. The lowest ICA review threshold, CA$5 million in target assets, continues to apply to direct acquisitions of cultural businesses (such as those involving the publication, distribution or sale of books, magazines, film and music recordings) and acquisitions by and from investors from the relatively few countries that remain outside of the WTO.
Both the ICA and CA threshold increases noted above reflect annual inflation-based indexing mechanisms set out in the CA and ICA, respectively. For more information, please contact a member of Dentons’ Competition and Foreign Investment group.