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$50,000.17 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.18
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.19 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).20
Certain classes of transactions are exempt from notification, including transactions where all parties are affiliates of each other,21 an acquisition of real property or goods in the ordinary course of business,22 acquisitions of share interests in a combination for the sole purpose of underwriting the share or interest,23 acquisitions of collateral or receivables made by a creditor pursuant to a good faith credit transaction in the ordinary course of business,24 certain joint ventures,25 and where the Commissioner has issued an ARC.26
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),27 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.28 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).29
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.30
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.31
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.32 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 court33 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.
The expiry of the applicable statutory waiting period does not always mean that the Bureau has completed its substantive review of a transaction.34 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.