The Canadian Competition Bureau recently unveiled draft new Guidelines for The Revised Merger Review Process, as well as a proposed Regulation Amending the Notifiable Transactions Regulations1. Both documents are in draft form, with comments requested by May 29, 2009 in the case of the draft Guidelines, and by June 3, 20092 in the case of the proposed Regulation. The sudden implementation of a U.S.-style two-stage merger review process on March 12, 2009 left the Bureau rushing to update the filing requirements, not least because the current Regulation speaks of a choice between a short-form and a long-form notification that no longer exists. The Bureau's draft process Guidelines seek to answer questions concerning "supplementary information requests," the equivalent of so-called "second requests" for documents and information in the United States. The issuance of such a request triggers the second stage of merger review and suspends the waiting period while the parties supply the additional information requested.
Among other things, the proposed amendments to the Notifiable Transactions Regulations set out the new uniform merger filing requirements, which essentially will mandate the filing of a "short form" notification plus documents in all cases. A "short-form" notification currently requires, along with certain basic information about the parties and the transaction, lists of the top twenty customers and suppliers for the principal products of each party and its affiliates with significant business in or with Canada. After coming into force (likely in summer 2009), the amended Regulation will also require the filing of two categories of documents:
- legal documents that are to be used to implement the proposed transaction (or the most recent drafts thereof); and
- studies, surveys, analyses and reports prepared or received by a senior officer for the purpose of evaluating or analysing the proposed transaction with respect to "market shares, competition, competitors, markets, potential for sales growth or expansion into new products or geographic regions."
The latter requirement is virtually identical to specification 4(c) of the merger notification form used in the United States3. These types of documents were previously required to be filed in Canada only as part of a long-form notification, but will now be required in all cases where formal notification is made. How many transactions this will affect remains to be seen, however, as the vast majority of notifiable transactions in Canada do not raise any serious competition issues and have in the past been the subject of requests for advance ruling certificates (ARCs) rather than formal notifications. It is not yet known whether the Bureau will now expect the so-called "4(c)" documents to accompany ARC requests - even in cases involving no or trivial competitive overlap. Doing so would significantly increase the regulatory compliance burden for the majority of notifiable transactions in Canada, arguably with little or no benefit to those reviewing such routine transactions.
The more controversial of the two draft documents, however, is likely to be the draft Guidelines for the The Revised Merger Review Process. The Guidelines seek to outline the Bureau's approach to the new two-stage merger review process generally, and to "supplementary information requests" in particular. As described in the Guidelines, the Act now provides for an initial 30-day waiting period, during which the majority of mergers will be reviewed (and during which the transaction may not be completed). For transactions where further review is required, the Act authorizes the Bureau to issue a "supplementary information request" which extends the waiting period for an additional 30 days from the date the requested information is supplied.
Second requests issued by the Bureau's counterparts in the United States are infamous for the time, money and managerial resources that must be expended in order to comply, and for the exhaustive scope of the information required. The American Bar Association revealed in 2007 that for 23 transactions for which information had been gathered, the total cost of complying with a second request had averaged over US$5 million (median US$3.3 million) and that agency review had taken about seven months (both average and median) to complete4. Competition Bureau Officials in Canada have sought to allay fears over the potential adoption of a comparable approach in Canada. That said, the draft Guidelines seem implicitly to confirm the Bureau's intention to adopt the basic premise of U.S. second requests, which is that before allowing the waiting period to expire, the agencies will require the production of e-mails and other documents generated or received over a two- to three-year period by those in positions of authority concerning the overlap products - whether probative or not.
The Canadians propose to limit the search to a maximum of 30 custodians in most cases (the ABA letter referred to above revealed that an average of 126 custodians and a median of 94 were required to be searched in the sample of second requests surveyed), and to engage in pre- and post-issuance dialogue in order to avoid, or at least narrow, the scope of a Canadian second request. The draft Guidelines also discuss internal controls on the scope and issuance of second requests, and outline internal "appeal" procedures parties may follow if they object to the scope of a second request.
Implicit throughout the Guidelines, however, is the assumption that - within 30 days of being notified of a proposed transaction that raises serious competition issues - the Bureau will demand production not only of the information most relevant to its analysis (as was previously its practice with the issuance of relatively targeted information requests or court orders, typically much later in the process), but of all information that could potentially be relevant in any way to eventual litigation of the case. As such, it would appear that despite limiting the scope of second requests as compared to its U.S. counterparts, the burden that the Competition Bureau will place on parties to transactions that raise complex competition issues in Canada (and who wish eventually to see the waiting period expire) is about to undergo a quantum leap.
The Guidelines also indicate that, consistent with the practice in the United States, the Bureau will be open to identifying the most important information it requires on key issues, and to working through the issues and potentially clearing the transaction before the full scope of the information requested in the second request is actually produced. While parties may in some cases have their transactions cleared without fully complying with a second request, not all parties will be able easily to reach agreement with the Bureau on required remedies. For such transactions, the cost of reaching the position where the Bureau must go to the Competition Tribunal and prove a prima facie case in order to further delay the transaction may now be very high indeed.
As noted above, comments are requested in respect of the draft Guidelines by May 29, 2009, and in respect of the draft amendments to the Regulations by June 3, 2009.