On October 6, 2011, the Competition Bureau announced the publication of the final version of its revised Merger Enforcement Guidelines (MEGs), only thirteen months after announcing its intention to review the guidelines in September 2010. The revised MEGs replace both the 2004 version of the guidelines and the Bureau’s 2009 Efficiencies in Merger Review bulletin.
The revisions aim to better describe the Bureau’s analytical approach to merger review by addressing discrete areas where the 2004 MEGs no longer fully reflected Bureau practice or current economic and legal thinking. It is generally understood that the 2010 revisions to the U.S. Horizontal Merger Guidelines (U.S. Guidelines) also constituted an important factor driving the need for review. Whereas the U.S. Guidelines are limited to horizontal mergers, however, the revised MEGs also address vertical merger analysis and go further than the U.S. Guidelines with respect to horizontal merger analysis by incorporating more recent thinking on Canada’s own unique efficiencies defence.
As in the draft version of the revised MEGS, released for consultation in June 2011, the final revised MEGs are not intended to reflect any dramatic shifts in Bureau merger enforcement policy or practice. Neither does the final version introduce any major changes from the draft version, although it does further clarify a number of definitions, fully incorporate and replace the Bureau’s 2009 Efficiencies Bulletin, and eliminate an appendix providing additional information on sunk costs that was contained in both the 2004 MEGs and the draft revisions. While the title of Part 13 is changed from “Failing Firm” to “Failing Firms and Exiting Assets” in the final version, no changes were made to the substance of this section.
As discussed in greater detail in our post of July 4, 2011, the revised MEGs:
- adopt a more nuanced approach to market definition, making clear that market definition is a means and not an end toward assessing competitive effects and emphasizing the importance of economic and other analytical tools;
- provide greater detail regarding the Bureau’s approach to transactions involving minority interests and interlocking directorates, reflecting the position taken in a prior submission to the Organization for Economic Co-operation and Development (“OECD”);
- incorporate more detailed thinking on monopsony power, such that it may apply not only to a merger of suppliers but also to a merged firm with significant capacity as a buyer; and
- provide enhanced guidance regarding the Bureau’s framework for analysis of “vertical” mergers, particularly with respect to foreclosure and in relation to both unilateral and coordinated effects.
In addition to the above developments, the revised MEGs make the timeliness branch of the three-pronged entry test more flexible by removing prior reference to a two-year period during which, as a rule of thumb, entry would be considered timely in all industries. They also reorganize the contents of the coordinated effects framework to better reflect Bureau practice, provide additional examples of countervailing power, and introduce a discussion of bidding and bargaining markets in the assessment of unilateral anti-competitive effects.
These changes, designed to better reflect current Bureau practice, should not result in any fundamental changes in approach, although they do introduce more nuanced thinking and a greater range of economic and analytical tools than were previously incorporated in the 2004 version of the guidelines. While the changes could be considered consistent with a movement by the Bureau toward a more activist approach to merger review, they will also present opportunities for parties to incorporate more nuanced thinking and a greater range of tools when presenting a case to the Bureau.