Like many merger control agencies, in 2021 the Canadian Competition Bureau (the Bureau) grappled with a significant increase in the number of mergers being notified. After years of lobbying, the Bureau also received a material increase to its budget. It supported the government of Canada's review and update of the Competition Act, including amendments that were enacted on 23 June 2022. Following the high levels of merger review activity throughout 2021, the first quarter of 2022 has seen a marked decline in the number of mergers notified. Economic conditions have changed as interest rates rise, inflation is at record high levels and government support and stimulus relating to covid-19 is withdrawn. Geopolitical risks, such as the war in Ukraine, and supply chain backlogs may also have contributed to the slowdown in merger activity.
Year in review
From January 2022 to April 2022, the Bureau completed 71 merger reviews. Of those, 40 merger reviews (56 per cent) concluded with the issuance of an advance ruling certificate (ARC), and 30 merger reviews (42 per cent) concluded with the issuance of a no-action letter (NAL). During this period, one consent agreement (remedy) was filed. In 2021, the Bureau concluded 236 merger reviews, representing an almost 50 per cent increase from 2020 (during which the Bureau concluded 161 merger reviews). Of those, 154 merger reviews (65 per cent) concluded with the issuance of an ARC, and 78 (33 per cent) concluded with the issuance of a NAL. Four merger reviews (less than 2 per cent) were concluded by consent agreement. In the first half of the Bureau's 2021–2022 year,2 117 merger reviews were concluded (an increase from the 72 merger reviews concluded during the same period in 2020), of which 105 (90 per cent) had no enforcement action taken (70 ARCs (60 per cent) and 35 NALs (30 per cent)). The Bureau also reported that it cleared 100 per cent of its non-complex reviews and 92 per cent of its complex reviews within its target time frame according to the complexity of the review (called a 'service standard'). The Bureau has reported that the average review time in 2021–2022 for non-complex mergers was 9.99 days, and the average review time for complex mergers was 43.42 days.3
The Bureau initially anticipated issuing supplementary information requests (SIRs) only in the case of 'those very few mergers that raise significant potential issues'.4 In this regard, six SIRs were issued in the first half of the Bureau's 2021–2022 year. A SIR is not the Bureau's only method for obtaining large volumes of additional data and information in respect of a transaction. On the contrary, it is routine for the Bureau to issue voluntary information requests to the parties where no SIR is forthcoming. The issuance of a SIR does not signal that the Bureau will require a remedy; however, the issuance of, and process for compliance with, a SIR does significantly lengthen the Canadian merger review process.
The Bureau's initial response to the covid-19 pandemic was focused on (1) protecting consumers and businesses from anticompetitive activity, and (2) providing guidance for competitor collaborations to support the crisis response efforts.5 To that end, it closely monitored potentially anticompetitive conduct seeking to take advantage of consumers and businesses during the covid-19 crisis, including deceptive marketing practices and collusion by competing businesses. However, while the Bureau was timely in issuing guidance for how it would analyse competitor collaborations that were related to the crisis (stating that where the collaboration was executed in good faith and as a temporary measure, the Bureau would generally refrain from exercising scrutiny), these collaborations did not end up occupying a large proportion of the Bureau's time during the pandemic. Similarly, the Bureau was quick to confirm that it would not be relaxing the criteria for the 'failing firm defence' in light of covid-19 – but the anticipated increase in failing firm claims in the wake of covid-19 has not materialised.
Since then, the Commissioner has reiterated on numerous occasions that strong competition policy and enforcement will be key to Canada's economic recovery and to building a stronger and more resilient economy in the long term.6 The government of Canada's Budget Implementation Act, 2022 includes amendments that significantly expand the scope of the Canadian Competition Act. The amendments were enacted on 23 June 2022. This legislation includes (1) a new anti-avoidance rule designed to capture more mergers under the pre-merger notification regime, and (2) expanding the range of factors relevant to mergers and competitor collaborations in digital industries (e.g., network effects, non-price competition, innovation). In addition to the amendments in the Budget Implementation Act, 2022, there has been ongoing debate and public consultation around possible further changes to the Competition Act, including around the future of Canada's unique efficiencies defence.
The Bureau also continues to issue position statements describing its analysis in complex mergers and key transactions. Major merger reviews carried over from 2020 and key transactions reviewed between April 2021 and April 2022 include the following.i S&P Global Inc/IHS Markit Ltd7
On 3 February 2021, the Bureau was notified of S&P Global Inc's agreement and plan of a merger with HIS Markit Ltd (IHSM), valued at approximately C$56 billion. On 21 December 2021, the Bureau entered into a consent agreement with S&P Global. Both parties are widely held publicly traded companies that supply price assessments across a range of commodities. The Bureau determined that the proposed transaction would likely result in a substantial lessening of competition in Canada for various commodity price assessments within the following segments: energy (oil, natural gas liquids, liquefied petroleum gas, biofuels), coal and petrochemicals. The consent agreement requires the sale of certain IHSM businesses, specifically Oil Price Information Services (OPIS), including the PetroChem Wire division of OPIS; and the Coal, Metals and Mining business. The Commissioner has approved News Corporation as a buyer of the divestiture businesses.ii GFL Environmental Inc/Terrapure Environmental Ltd8
On 15 March 2021, GFL Environmental Inc announced it had entered into a definitive agreement to acquire the solid waste and environmental solutions business of Terrapure Environmental Ltd and its subsidiaries for approximately C$927 million. GFL completed the acquisition on 17 August 2021. On 30 November 2021, the Bureau challenged the acquisition before the Competition Tribunal, alleging that the transaction had likely substantially lessened competition in the markets for industrial waste services and oil recycling services in western Canada. On 14 April 2022, the Bureau reached an agreement with GFL, whereby GFL agreed to sell seven of its industrial waste services and oil recycling services facilities to a buyer acceptable to the Commissioner.iii Rogers/Shaw9
On 15 March 2021, Rogers Communications Inc announced its proposed acquisition of Shaw Communications Inc, valued at approximately C$26 billion.10 On 9 May 2022, the Bureau announced it is seeking to block Rogers's proposed acquisition of Shaw. The Bureau is concerned that the potential merger would substantially prevent or lessen competition by (1) eliminating an established, independent and low-priced competitor, (2) preventing future competition for wireless services within and outside Shaw's existing service area, and (3) preventing competition in wireless services for business customers in Ontario, Alberta and British Columbia. The Bureau further alleges that the potential merger has already led to a reduction of competition in the form of reduced investment by Shaw in its network and a reduction in Shaw's marketing and promotional activity.iv Karta Halten BV/Domtar Corp11
On 11 May 2021, Karta Halten BV (Paper Excellence) agreed to acquire Domtar Corp for approximately C$3 billion. The Bureau concluded that the proposed transaction would likely lessen competition substantially in the southern interior and coastal region of British Columbia through the creation of monopsony power for Paper Excellence for the purchase of wood fibre from the Thompson/Okanagan region. The Bureau cited several reasons for its conclusion: (1) the combined market share of Paper Excellence and Domtar likely exceeds 70 per cent; (2) there are high barriers to entry; and (3) Domtar and Paper Excellence hold competitive advantages, making them each other's closest competitors. On 19 November 2021, the Commissioner of Competition entered into a consent agreement with Paper Excellence requiring it to sell Domtar's pulp mill in Kamloops, British Columbia. On 1 June 2021, the Commissioner approved Kruger Specialty Papers Holding LP, an affiliate of Kruger Inc, as the purchaser of the pulp mill.v Federated Co-operatives Limited/Blair's Family of Companies12
On 7 July 2021, the Commissioner entered into a consent agreement with Federated Co-operatives Limited (FCL) and Blair's Family of Companies related to their proposed retail crop inputs joint venture. FCL and Blair's agreed to divest Blair's Lipton retail location, and two nearby anhydrous ammonia satellite facilities, to a purchaser acceptable to the Commissioner. The Bureau concluded that the proposed transaction was likely to substantially lessen competition in the retailing of crop inputs in the Lipton area because: (1) remaining competitors are not sufficiently close or vigorous competitors to Prairie Co-op (an independent retail cooperative) and Blair's; (2) remaining competitors do not carry certain key product lines or lack infrastructure and ability to effectively serve anhydrous ammonia customers; and/or (3) remaining competitors are unlikely to expand sufficiently in response to the predicted competitive effects of the proposed transaction.vi Aon plc/Willis Towers Watson plc13
On 13 July 2020, the Bureau was notified of Aon plc's business combination agreement with Willis Towers Watson plc (WTW), valued at approximately US$30 billion. The Bureau concluded that the transaction would result in a likely substantial lessening of competition with respect to treaty reinsurance consulting and brokerage services in Canada because: (1) Aon and WTW are close competitors and there is a limited presence of effective remaining competitors; (2) the barriers to developing peril-specific and geography-specific modelling expertise, and a global footprint to access reinsurer capacity, make timely and sufficient entry or expansion unlikely; and (3) the value of reinsurance brokers lies in the advice they provide with respect to choice of model, their access to data used as inputs in the different models and model validation. The Bureau coordinated closely with the US Department of Justice and the European Commission on this review. On 16 June 2021, the US Department of Justice filed a civil lawsuit seeking to block the transaction. On 9 July 2021, the European Commission announced its approval of the transaction, subject to the divestiture of several lines of business, including WTW's treaty reinsurance division globally. On 26 July 2021, Aon and WTW announced that they had agreed to terminate the business combination agreement.vii MacEwen Petroleum Inc and Grant Castle Corp/Quickie Convenience Stores Corp14
On 1 September 2021, MacEwen Petroleum Inc and Grant Castle Corp proposed to acquire Quickie Convenience Stores Corp's 51 stores, 22 of which include fuel stations, in Ontario and Québec. On 29 October 2021, the Commissioner entered into a consent agreement with MacEwen and Grant Castle that requires MacEwen to sell the retail fuel station that was owned and operated by Quickie in Kemptville, Ontario. The Bureau concluded that the proposed transaction would likely result in a substantial lessening of competition in Kemptville for three reasons: (1) it would result in market shares above the 35 per cent safe harbour threshold articulated in the Bureau's Merger Enforcement Guidelines; (2) a post-transaction price would not likely be constrained by stations within or outside Kemptville because prices are largely determined by local competitive dynamics; and (3) post-transaction, MacEwen would have the ability, and an increased economic incentive, to raise prices at its stations in Kemptville. The Commissioner approved the sale of the station to Centex Petroleum, an independent retail fuel site operator based in Canada and a new entrant to the Kemptville market.
The merger control regime
The Competition Act contains two parts that apply to mergers. Part IX contains the pre-merger notification provisions and Part VIII contains the substantive merger review provisions.i Pre-merger notification
A transaction that exceeds certain financial thresholds is subject to pre-merger review and may not be completed until the parties have complied with Part IX of the Competition Act. Under Part IX, the parties must file a pre-merger notification with the Bureau and wait until the applicable waiting period has expired, been waived or been terminated. Failure to file 'without good and sufficient cause' is a criminal offence, punishable by a maximum fine of C$50,000.15 Where the parties close prior to the expiry of the waiting period, the Commissioner can apply to the court for a range of remedies, including fines of up to C$10,000 per day for each day that the parties have closed in advance of the expiry of the waiting period.16
For a pre-merger notification to be required under the Competition Act, a transaction must exceed certain thresholds. For acquisitions of shares or interests in combinations, the 'size of transaction' threshold will be exceeded if the target (and any entities it controls) has assets in Canada, or revenues in or from Canada generated by assets in Canada, in excess of C$93 million.17 The 'size of parties' threshold is met if the parties to the transaction, together with their respective affiliates, have assets in Canada or revenues in, from or into Canada in excess of C$400 million. For share transactions, the notification requirement is triggered by the acquisition of 20 per cent of the voting shares of a public company or 35 per cent of the voting shares of a private company (or, in each case, 50 per cent of the voting shares if the acquirer already owns the percentages stated above).18
Certain classes of transactions are exempt from notification, including transactions where all parties are affiliates of each other,19 an acquisition of real property or goods in the ordinary course of business,20 acquisitions of share interests in a combination for the sole purpose of underwriting the share or interest,21 acquisitions of collateral or receivables made by a creditor pursuant to a good faith credit transaction in the ordinary course of business,22 certain joint ventures,23 and where the Commissioner has issued an ARC.24
The filing of a notification requires information relating to the nature of the parties' businesses and affiliates, principal customers and suppliers of the parties and their affiliates and general financial information. Other than in the case of a hostile bid (where special timing rules apply),25 each party to the transaction must submit its completed notification form for the waiting period to begin. The information and documentation to be supplied with the form largely mirrors requirements in the United States, namely, all documents evaluating the proposed transaction with respect to competition (known as '4(c)' documents in the United States) as well as the most recent version of any legal documents to be used to implement the proposed transaction.
A transaction that is subject to notification cannot be completed until the expiry of the applicable statutory waiting period. Following the receipt of completed filings by both parties to a transaction, there is a 30-day waiting period. Within that initial 30-day period, the Bureau may issue a SIR if it determines that further information is required to complete its review.26 This power is discretionary and not subject to oversight by the Tribunal or courts.
The issuance of a SIR triggers a second 30-day waiting period, which commences when both parties have substantially complied with the SIR. A proposed transaction may not close until the expiry of this second waiting period (subject to certain exceptions).27
Upon expiry or waiver of the applicable waiting period, the transaction may be completed, unless the Tribunal has issued an order enjoining the completion of the transaction or the parties have otherwise agreed with the Commissioner to defer closing. The Tribunal will only make an order delaying closing where its ability to remedy the merger would be substantially impaired by closing. The waiting period may be terminated earlier if the Commissioner notifies the parties that he or she does not intend, at that time, to make an application to the Tribunal under the substantive merger provisions (by issuing a NAL), or if the Commissioner issues an ARC. The waiting period may be extended if the Commissioner seeks, and is granted, an order from the Tribunal delaying closing.28
The Bureau's non-binding Merger Review Process Guidelines (the Process Guidelines) provide guidance on the Bureau's administrative approach to the merger review process. The Bureau aims to obtain the information it requires to complete its assessment as early in the process as possible. During the initial 30-day period, the parties to the transaction may wish to engage in consultations with the Commissioner, who may also request that the parties provide further information on a voluntary basis.29
Compliance with these requests may reduce the scope of, or potentially even the need for, a SIR. Where parties intend to rely upon exceptions set out in the Competition Act, such as efficiency gains likely to result from the transaction, the Bureau encourages the parties to provide substantiating claims regarding those exceptions as early as possible during the review process. The Bureau may also seek information from third parties by issuing a voluntary information request or by obtaining court orders under Section 11 of the Competition Act directing a third party to provide certain information in connection with the Bureau's review of the transaction.
The Process Guidelines establish standards for the scope of a SIR, including the relevant time frame for which the Bureau will generally request data, the number of custodians in respect of which records may be collected, and the potential for timing agreements, by which the parties and the Bureau may agree upon voluntary extensions to the review period. One aspect of the Bureau's dialogue with the parties prior to issuing a SIR centres on the appropriateness of requests the Bureau intends to make in the SIR. For example, the Bureau may seek feedback to determine whether the parties maintain data in the form in which the Bureau intends to request it and with whom or how such data is held. In addition, the Bureau may seek to identify any confidentiality concerns associated with the provision of such data, and ascertain whether there are any other issues that might impair the ability of the parties to comply with the SIR as a result of ambiguities or inconsistent terminology. Dialogue prior to the issuance of a SIR does not preclude post-issuance dialogue for the purpose of further narrowing issues or scope for production.
The number of custodians for the purposes of collecting records related to the transaction can be an important factor in the overall cost of complying with a SIR, and it is in the parties' interest to attempt to limit the number of custodians as much as possible. The Process Guidelines state that the Bureau will generally cap the number of record custodians to be searched in preparing a response to a SIR at a maximum of 30 individuals.30 However, this does not preclude the Bureau asking for information contained in central files (such as budgets, contracts and financial reports), in the files of predecessors and assistants of custodians (during the search period identified by the Bureau), and in the files of employees operating at the local level where it has determined that local markets are relevant to the merger review. In some situations, such as where operations are run at the North American level and there are no issues unique to Canada, the Bureau may agree to align custodians with those identified by US authorities for the purposes of a second request under the Hart-Scott-Rodino Act. Generally, the Bureau limits the time period for the collection of records prepared by the party to the two calendar years immediately preceding the issuance of the SIR, and limits data requests to the three calendar years immediately preceding the issuance of the SIR.
The Process Guidelines also purport to establish an internal appeals process to deal with disputes over a SIR. If a party objects to the scope of a SIR and cannot resolve the issue with the relevant assistant deputy commissioner, the party may submit a written notice of appeal. The notice is forwarded to a senior Bureau official outside the mergers branch who, after hearing from the party and relevant assistant deputy commissioner, will either confirm the SIR or modify it. The same process can be used if the party and assistant deputy commissioner disagree over whether there has been compliance with the SIR (and therefore disagree over whether the second waiting period has commenced). If that disagreement persists, the Bureau may apply to a court31 for a determination on the question of compliance.
The Process Guidelines also emphasise the Bureau's desire to cooperate with its counterpart agencies in other jurisdictions. The Bureau's position is that it may share information with such agencies as required for the enforcement of the Competition Act, and parties should assume that the Bureau will share information with any other jurisdiction where the parties have notified their transaction.ii Substantive considerations
Regardless of whether a transaction is subject to pre-merger notification, the substantive provisions of the Competition Act apply to all mergers. The substantive test the Bureau applies in reviewing transactions is whether the transaction is likely to prevent or lessen competition substantially in a relevant market. There is an express efficiency defence to anticompetitive mergers, which applies to cases where the efficiencies from the merger are likely to be greater than, and offset any effects of, the prevention or lessening of competition. Mergers may be challenged only by the Commissioner, who can apply to the Tribunal to delay or block closing and to unwind or seek other remedies for completed mergers for up to one year after their completion.
On 14 February 2022, the Commissioner published a news release welcoming a Federal Court of Appeal ruling that confirms the Competition Tribunal has the power to temporarily block mergers in urgent circumstances. The Commissioner appealed a July 2021 decision related to the Bureau's ongoing challenge of a merger between oil and gas waste service providers Secure and Tervita. On 29 June 2021, the Commissioner filed applications under Sections 92 and 104 of the Competition Act to block the transaction and to obtain an injunction preventing the closing of the transaction, respectively. The Bureau requested the Tribunal issue an order to prevent the companies from completing the merger until the Section 104 injunction application could be heard and decided. The Tribunal concluded that it lacked the power to grant the temporary relief requested. The merging parties closed the transaction shortly thereafter. The Federal Court of Appeal determined that the Tribunal erred in its conclusion. Ultimately, the Competition Tribunal has the power to prevent the closing of a transaction until an application for an interlocutory order can be heard in full.32
The expiry of the applicable statutory waiting period does not always mean that the Bureau has completed its substantive review of a transaction.33 It is often the case that the Bureau's review will extend beyond the waiting period in complex cases. However, unless the Commissioner is successful in obtaining an injunction under the Competition Act to prevent the parties from closing, as a legal matter, the parties are free to close after expiry of the waiting period, or any extension thereof. In recent years, the Bureau has increasingly issued a press release concerning its ongoing substantive reviews after the expiry of the waiting period (and, in some cases, the closing of the transaction).
The Bureau has adopted non-binding service standards to indicate the expected time for the completion of its substantive review of a merger. 'Non-complex' transactions carry a 14-day time frame for review. 'Complex' transactions carry a 45-day time frame for review or, if a SIR is issued, the time frame is extended to 30 days from the date of compliance with the SIR.
Other strategic considerations
Since his appointment in 2019, current Commissioner of Competition Matthew Boswell has outlined a more vigorous approach to enforcement regarding non-notifiable mergers, including the expansion of the Merger Intelligence and Notification Unit to increase its focus on detecting non-notifiable mergers.34 As such, we expect to see an increased number of post-closing investigations initiated by the Bureau.
Additionally, on 21 May 2020, the Bureau released its model timing agreement for merger reviews involving claimed efficiencies. The Bureau's current position is that merging parties should voluntarily enter into a timing agreement as a prerequisite for the Bureau to consider efficiencies claims. The model timing agreement contemplates timed stages for the merging parties to engage with the Bureau and provide submissions and evidence in respect of their efficiencies claims, and imposes a 30-day notice requirement in advance of closing, provided that this notice shall not be delivered prior to 30 days after compliance with the SIR (i.e., the expiry of the statutory waiting period).35
Outlook and conclusions
The Bureau continues its practice of actively scanning the Canadian marketplace for, and reviewing and challenging, mergers – even where they do not trigger a notification requirement under the Competition Act. With an increased budget, the Bureau will increase capacity to take on new and more complex anticompetitive conduct; strengthen enforcement teams by bringing on more litigation capacity and external experts; and enhance its capacity to advocate for pro-competitive regulatory and policy changes at all levels of government in Canada. This highlights a number of considerations that parties contemplating a transaction should keep in mind, including the following.
Regardless of whether a merger triggers a pre-merger notification requirement under Part IX of the Competition Act, it may be challenged by the Bureau for up to one year after its completion. As such, substantive due diligence is critical in mergers between competitors and between suppliers and customers, even in circumstances where formal advance notice need not be given to the Bureau.
Parties to a merger should be aware of the importance of documents in the Bureau's review of mergers, as a review of the parties' internal documents can affect both the length and outcome of the Bureau's assessment of a transaction.
The Bureau is receptive to receiving the views of market contacts on mergers, whether those parties are customers, suppliers, competitors or others. While the Bureau is sensitive to strategic complaints, it will follow the evidence as appropriate in any given case.
The Bureau closely coordinates merger reviews with foreign agencies, particularly with the US Department of Justice and Federal Trade Commission, as well as the European Commission. Coordination between the Bureau and foreign agencies generally involves a request that merging parties grant a waiver to foreign agencies reviewing the transaction to allow those agencies to share any information they receive with the Bureau. This facilitates the coordination of the agencies' reviews, including sharing analysis and holding frequent update calls or meetings.36 The Bureau will take into account remedies imposed in other jurisdictions to the extent that these remedies address competition concerns in Canada; however, the Bureau will continue to require separate or additional remedies in Canada where these are necessary to address Canadian-specific concerns.
One word of caution, however: while coordination and cooperation with international agencies is on the rise, and the Bureau generally makes efforts to keep the length of its review in step with foreign agencies, the Commissioner's review can extend beyond the time taken for obtaining clearance in other jurisdictions, particularly where a merger raises unique substantive issues in Canada.