Certain types of transactions that exceed prescribed thresholds require pre-merger notification under Canada’s Competition Act. Such transactions cannot be completed until notice has been given to the Commissioner of Competition and the statutory waiting period has expired or, alternatively, has been terminated early or waived by the Commissioner. One of these thresholds, the transaction-size threshold, is subject to an annual index adjustment. As of February 2, 2019, the transaction-size threshold increased to C$96 million (from C$92 million in 2018). This threshold looks at the aggregate value of assets in Canada of the target (or of the assets that are the subject of the transaction) or the annual gross revenues from sales in or from Canada generated by those assets. The application of this threshold varies by the type of transaction. No other changes have been made to the pre-merger notification regime, including to the other applicable threshold for notification.
It is important to remember that the Commissioner can review and challenge all mergers, whether or not they are notifiable, within one year of closing. The Commissioner has in the past reviewed non-notifiable transactions, including Dow/DuPont, Iron Mountain/Recall, and Tervita/Complete. As such, a substantive competition analysis should be part of the assessment of proposed transactions of any size that may give rise to competition issues in Canada.
Investment Canada Act
Under the Investment Canada Act, the direct acquisition of control of a Canadian business by a non-Canadian is subject to a pre-closing filing and approval requirement where a specified threshold is exceeded. The following thresholds have increased for 2019.
Non-State-Owned Enterprise WTO Investments - Two of the three thresholds that will apply to most direct acquisitions of control of a Canadian business by non-Canadian, non-state-owned enterprise investors from WTO member countries have increased:
- Where the acquirer or the target is a non-state-owned enterprise “trade agreement investor”, the review threshold has increased to C$1.568 billion (from C$1.5 billion in 2018) in enterprise value of the target. Trade agreement investors include entities and individuals whose country of ultimate control is party to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Canada-EU Comprehensive Economic and Trade Agreement, the North American Free Trade Agreement and other bilateral trade partners. This currently includes investors controlled in the U.S., EU Member States, Mexico, South Korea, Chile, Peru, Columbia, Honduras, Panama, Australia, Japan, New Zealand and Singapore.
- Where the non-state-owned enterprise acquirer or target is controlled in other WTO member states (such as investors controlled in China), the review threshold has increased to C$1.045 billion (from C$1 billion in 2018) in enterprise value of the target.
State-Owned Enterprise WTO Investments - The threshold for direct acquisitions of Canadian businesses by non-Canadian, WTO investors that are state-owned has also increased to C$416 million (from C$398 million in 2018) in gross book value of assets on consolidated balance sheets.
It is worthwhile to remember that the Canadian government can review any direct or indirect equity and asset investment (including minority investments) involving a Canadian entity, or establishment of a new Canadian entity, by a non-Canadian on national security grounds. Where a proposed transaction may raise national security concerns, it is important that parties consider filing and timing strategies with respect to when and how to approach the Investment Review Division of Innovation, Science and Economic Development.