Significant changes to the Competition Act’s merger review process and the Investment Canada Act (ICA) came into effect on March 12, 2009, when the Budget Implementation Act 2009 (Bill C-10) received Royal Assent.

Changes to the Merger Provisions under the Competition Act

  • Increased thresholds for pre-notification ? The existing $400-million “size of the parties” threshold has been maintained,but the "size of the transaction" threshold increased from $50 million to $70 million (with further increases annually).
  • Different statutory waiting periods and production powers ? Previously, the statutory waiting period for mergers subject to notification was 14 days, with complex transactions subject to a maximum 42-day waiting period. Now, the period for most uncomplicated transactions has increased to 30 days. In complicated transactions, the Competition Bureau can extend the waiting period by an additional 30 days beyond the time required for the parties to respond to a request for information and documents from the Bureau.

The Bureau is authorized to issue a request for information to the parties to a proposed transaction "relevant to the Commissioner of Competition’s assessment of the proposed transaction" within 30 days after submission of pre-notification filings. Once the parties’ response is complete, and only then, a second30-day waiting period begins to run. Previously, the Commissioner was required to seek orders subject to the supervision of the courts, and the statutory waiting period continued to run while the parties gathered information responsive to the order.

  • Reduced post-closing challenge window ? The Commissioner’s previous three-yearpost-closing window to launch an application challenging a transaction has been reduced to one year.

Bill C-10 also made a number of changes to the criminal and reviewable conduct provisions of the Competition Act.

Investment Canada Act Changes

A. New National Security Review

The ICA permits the government to review acquisitions of control of Canadian businesses by non-Canadians that are above certain prescribed thresholds, to ensure they are "of net benefit to Canada." The scope of review powers has been increased to encompass concerns of national security in respect of acquisitions of control and minority investments in Canadian businesses by non-Canadians.

  • Vague criteria and potentially broad review ? The government can now review proposed investments where it has “reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security.” No financial threshold applies. There is no definition of “national security” in the bill, and review can occur before or after closing. The responsible Minister may deny the investment, ask for undertakings, provide terms or conditions for the investment, or require divestment.
  • Information produced can be shared with other investigating agencies ? The Minister can compel a party to provide information that the Minister “considers necessary,” and may communicate information produced with respect to a national security review to prescribed investigative bodies, which may also disclose the information for thepurposes of that agency’s investigation.

B. Changes to Review Thresholds

  • Increase of WTO thresholds ? The current $312-million prescribed threshold for pre-closing review of direct investments by World Trade Organization (WTO) member country investors (except in cultural, transportation, financial services and uranium businesses), will, on a date still to be fixed, increase dramatically — to $600 million, $800 million and $1 billion over the next six years. After that, the threshold will be determined on an annual basis using a prescribed formula.

When the increased thresholds for review are proclaimed in force, the calculation will be based on "enterprise value," a term not yet defined, instead of the current valuation based on the aggregate value of all assets being acquired as shown in the financial statements for the Canadian business.

  • Removal of most sector-specific thresholds ? Previously, the threshold for review for controlled sectors (cultural, transportation, financial services and uranium businesses) and investments by non-WTO investors was $5 million. This threshold has been removed for investments in all sectors except for cultural businesses and for certain direct investments by non-WTO investors.

McCarthy Tétrault Notes:

Overall, Canada’s merger review process is now much closer to that of the United States. There, a similar "second request" procedure for complicated transactions is used, and responding to second requests can take months and cost millions of dollars.

For foreign investors in Canada, it willalso be interesting to see how widely the government invokes its new national security review powers under the ICA.