Both the Competition Act and the Investment Canada Act thresholds for review of acquisitions involving Canadian businesses are expected to increase in 2017. The “size of target” threshold for Competition Act notification, if adjusted pursuant to the formula prescribed in the Act, will increase very slightly to C$88 million (from C$87 million in 2016), although this increase has yet to be confirmed by the Minister and is subject to his discretion.
The Canadian government has also announced that the threshold for review under the Investment Canada Act applicable to direct acquisitions by state owned or influenced WTO investors will increase to C$379 million for transactions closing in the remainder of 2017 (from C$375 million in 2016), based on the book value of assets. Other ICA thresholds remain unchanged at this time, although the government announced in the fall that the review threshold for private WTO investors ‒ based on enterprise value of the Canadian business ‒ will increase in April to C$1 billion rather than C$800 million as previously scheduled.
The Competition Bureau must generally be given advance notice of proposed transactions under the merger notification provisions of the Competition Act, when the “size of the target” exceeds the specified threshold, and when the combined Canadian assets or revenues “in, from or into” Canada of the parties together with their respective affiliates (the “size of parties” test) exceeds C$400 million. Transactions involving Canadian subsidiaries, as well as the direct acquisition of Canadian businesses or assets, and acquisitions of interests of as little as 20% (for public companies) or 35% (for private companies and interests in non-corporate business combinations) can trigger Competition Act merger notifications in Canada.
The “size of target” threshold for merger notification is based on either the book value of assets in Canada of the target (or in the case of asset acquisitions, of the assets in Canada being acquired), or the gross revenues from sales “in or from” Canada generated by those assets, calculated in accordance with the Notifiable Transactions Regulations under the Competition Act. The Act provides an amending formula to keep the target size indexed for inflation, but the Minister has the discretion not to index the threshold in any given year, and has exercised that right in the past. If implemented, however, the application of that formula would see the threshold increased to C$88 million for transactions closing in 2016 (or until a further such adjustment).
Investment Canada Act:
The threshold for advance review and Ministerial approval of certain direct foreign acquisitions of control of Canadian businesses under the Investment Canada Act is subject to annual indexing for inflation. The Investment Review Division of the Department of Innovation, Science and Economic Development (ISED, formerly Industry Canada) has announced that the amount will increase from C$375 million to C$379 million for 2017, based on the book value of the Canadian business, for direct acquisitions of control of non-cultural Canadian businesses by WTO investors (or from non-Canadian WTO investors), where the investor is a state-owned enterprise (SOE). The Investment Canada Act defines state-owned enterprises very broadly, and includes entities that are merely influenced by a foreign state.
The threshold for review of direct acquisitions of control of non-cultural Canadian businesses by WTO investors who are not SOEs is currently C$600 million based on the “enterprise value” of the Canadian business. This threshold is set to increase to C$800 million on April 24, 2017, but as noted above the government has said it will increase the threshold to C$1 billion in April (two years earlier than scheduled). The old “book value” threshold continues to apply to SOE investors from WTO members only, in respect of non-cultural businesses, as outlined above.
Indirect acquisitions of control of non-cultural Canadian businesses by WTO investors (or (or from non-Canadian WTO-sellers), as a consequence of the acquisition of control of their non-Canadian parents, are not subject to review, regardless of the size of the assets of the Canadian business. This exemption applies to SOE investors as well. All direct and indirect acquisitions of control of a Canadian business remain subject to notification under the Act, even if they are not subject to review.
Direct acquisitions of control of Canadian businesses with cultural activities, and direct acquisitions of control of non-cultural Canadian businesses where neither the sellers nor purchasers are from WTO-member states, are still subject to a review threshold of C$5 million based on the book value of the Canadian business. Indirect acquisitions of control of cultural businesses are still subject to review if the book value of the Canadian business exceeds C$50 million, as are indirect acquisitions of control by/from non-WTO investors.