On July 28, 2008, Canada's Ministry of Transport, Infrastructure and Communities (Transport Canada) released draft Guidelines for Mergers & Acquisitions Involving Transportation Undertakings (the Transport M&A Guidelines). The Transport M&A Guidelines, which were prepared in consultation with Canada's Competition Bureau, relate to the potential for a public interest review under section 53.1 of the Canada Transportation Act (the CTA) of certain proposed merger transactions involving federal transportation undertakings (those having an inter-provincial or international dimension).1,2
Transport Canada has also requested input on the possibility of new regulations exempting certain classes of transactions from the merger and review provisions of the CTA. Submissions related to the draft Transport M&A Guidelines and/or to exempting classes of transactions will be accepted until September 30, 2008.
Merger Review under the Canada Transportation Act
For all transactions "involving" a federal transportation undertaking, Section 53.1 of the CTA, enacted in June, 2007, provides that a copy of the Competition Act merger notification must be sent to the Minister of Transport at the same time it is filed with the Competition Bureau.
In the first phase of review, the Minister, after receiving a notification, forms an opinion as to whether the proposed transaction raises issues with respect to the public interest as it relates to national transportation. If the Minister is of the opinion that such public interest issues are raised, a second phase of review commences. If not, the process ends. If a second phase of review is ordered, the Minister will direct the Canada Transportation Agency (the Agency) or any other person to examine and report on any national transportation-related public interest issues that are raised. Such reports, along with a report from, and consultation with, the Commissioner of Competition,3 are meant to inform the Minister's eventual recommendation to the Governor in Council (the Cabinet) for or against Cabinet approval of the proposed transaction, with or without terms and conditions.4
The Transport M&A Guidelines
The CTA contains explicit provision for Ministerial guidelines, elaborated in consultation with the Competition Bureau, that (1) specify the information parties must provide to the Minister and Agency when giving notice of a proposed transaction, and (2) include factors that may be considered to determine whether the transaction raises public interest issues in respect of national transportation.5
Public Interest Factors
The Transport M&A Guidelines enumerate five categories of public interest factors to be considered in assessing whether a transaction involving a federal transportation undertaking raises issues with respect to the public interest as it relates to national transportation.6 The five categories (Economic, Environmental, Safety, Security and Social) and the numerous potential factors set out under these headings can be summarized as follows: Economic Outcomes: Factors potentially impacting economic outcomes are listed under five sub-headings:
- Impacts on Users of the Transportation System: The prime interest here is any impact on prices, service levels and access to services by users.
- Impacts on Communities: Included are impacts on the location of a non-transportation industry (e.g., tourism), on labour and employment, and on service availability/affordability in low-density areas.
- Impacts on Other Transportation Undertakings: This includes impacts on intermodal connections and vertical and horizontal competitive effects.
- Impacts on Canada: Impacts on Canadian competitiveness, leadership, management/workforce expertise, harmonization and productivity improvements, trade, gateways and corridors, innovation, technology and R&D, taxation and government expenditure are all mentioned.
- Impacts on the Undertakings Involved: Mentioned here are the viability of the resulting entity and the cost/revenue impacts on the undertakings.
Environmental Outcomes: Improvement of the quality of life and the environment by reducing congestion and pollution will be a positive public interest factor.
Safety Outcomes: Where relevant, the potential to improve safety in the workplace and communities will be considered.
Security Outcomes: Transactions are not to have an adverse impact on the capacity to protect citizens and to respond to any threat, and the reliability of new owners where there is a change of control of a "key undertaking" could be relevant.
Social Outcomes: Impacts on low-income workers and families, on persons with disabilities, on public- and private-sector accountability and transparency, on culture and on Canadian sovereignty are identified as potential factors.
Information Requirements for a Notice of a Proposed Transaction
The Transport M&A Guidelines specify that a notice of a proposed transaction should include: (1) information required to be filed under the Competition Act; and (2) a Public Interest Impact Assessment.
As regards (1), it is already a requirement under the CTA that a notice to the Minister/Agency contain a copy of the information required to be filed in a statutory notification under the Competition Act. However, the Transport M&A Guidelines go on to indicate that the notice to the Minister is also to include information supplied to the Competition Bureau in support of a request for an advance ruling certificate (an ARC) under the Competition Act. This is not uncontroversial, however, because receipt of an ARC exempts a transaction from notification under the Competition Act, and thus also, on the face of the legislation, from any requirement to give notice under the CTA.7
As regards the Public Interest Impact Assessment, the Transport M&A Guidelines provide that this submission should include, along with any other information the parties may wish to include:
- a description of the transaction and its objectives, the transportation undertaking(s) involved and the objectives with respect to the undertaking(s), and of any proposed changes to the business or strategic plans in respect of such undertaking(s);
- an assessment of relevant public interest impacts, information with respect to these impacts and a description of any proposed mitigation or remediation for any adverse impacts;
- identification of major stakeholders who may be interested in the transaction and a description of any consultations with them;
- identification of other government approvals required and their status; and
- supporting evidence for the statements made in the submission.
The draft Transport M&A Guidelines are open for comment, as noted above, until September 30, 2008. While they add clarity to the form that filings with Transport Canada will take, stakeholders may well take issue with the view that transactions that have been the subject of an ARC, and are thus exempt from notification under the Competition Act (and, on the face of it, the CTA merger review provisions), must file under the CTA if they meet the financial thresholds. Another area where clarification would be useful is the definition of a "transportation undertaking." An obvious category of exemption from the CTA merger review provisions would be, for example, transactions subject to public interest review by the National Energy Board or, for that matter, foreign investment review (which includes consideration of national transportation policies) under the Investment Canada Act. Given the broad scope of information requested in the draft Transport M&A Guidelines, however, it appears at first blush that Transport Canada contemplates a review that would largely duplicate such processes.