Executive Summary
The Competition Bureau can review any merger or acquisition transaction, whether or not it is a “notifiable transaction” and whether or not the transaction has already closed.
The general rule of thumb is that they will object to any transaction where they determine that the resulting company will be able to increase prices in any definable market by more than 5% and maintain those prices for one (1) year.
The Competition Bureau must generally be given advance notice of proposed transactions when:
- Transaction-Size Threshold – the assets in Canada or revenues of the target firm generated in or from Canada exceed $96 million (note that this threshold is reset, usually upwards, each year); and
- Party-Size Threshold – the combined Canadian assets or revenues of the parties and their respective affiliates in, from or into Canada exceed $400 million.
Discussion
When contemplating a potential merger or acquisition in Canada, parties to the transaction need to be aware of the Competition Act and its potential implications on that transaction. The Competition Act is a federal law governing most business conduct in Canada. It contains both criminal and civil provisions aimed at preventing anti-competitive practices in the marketplace. Its stated purposes include:
- ensuring that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy; and
- providing consumers with competitive prices and product choices.
The Competition Bureau Can Review Any Merger or Acquisition Transaction
The Competition Bureau can review any merger or acquisition transaction, whether or not it is a “notifiable transaction” as discussed below and whether or not the transaction has already closed. And it can nullify or demand changes to any such transaction that it feels will have the effect of preventing or lessening substantially competition in a definable market. And by “any definable market” they mean any definable market no matter how small or how large so long as the transaction will have the effect of lessening competition in that market.
General Rule of Thumb
The Competition Bureau has published guidelines setting forth the multitude of factors they will consider when determining whether a transaction will have the effect of preventing or lessening substantially competition in a definable market. However, it is understood that their general rule of thumb is that they will object to any transaction where they determine that the resulting company will be able to increase prices in any definable market by more than 5% and maintain those prices for one (1) year.
“Notifiable Transactions”
The Competition Bureau must generally be given advance notice of proposed transactions when both of the following tests are met:
- Transaction-Size Threshold – the assets in Canada or revenues of the target firm generated in or from Canada exceed $96 million; and
- Party-Size Threshold – the combined Canadian assets or revenues of the parties and their respective affiliates in, from or into Canada exceed $400 million.
If either test is not met, then the transaction is not a “notifiable transaction” but is still subject to discretionary review by the Competition Bureau as noted above.
Methods of Notification and Competition Bureau Approval
Notification can be effected in one of two ways (but it is not uncommon to submit both types of notification).
- Prescribed Notification Form
The prescribed notification form requires information about the business of the parties and their affiliates, including a narrative description of the business and its operations, financial statements, and customer lists, supplier lists, business plans, marketing plans, board papers and competition analysis.
The submission of complete prescribed forms triggers a statutory 30-day waiting period during which the parties may not complete the transaction without the approval of the Competition Bureau.
The issuance of a supplementary information request by the Competition Bureau during this 30 day statutory waiting period has the effect of extending the waiting period until 30 days after compliance with the supplementary information request.
- Advance Ruling Certificate / No Action Letter
Parties to a transaction may instead choose to request an advance ruling certificate (“ARC”). An ARC request is a letter that describes the parties, the transaction and the relevant industry, and explains why the transaction should not be of concern to the Competition Bureau. An ARC effectively insulates the transaction from subsequent challenge.
Instead of issuing an ARC the Competition Bureau may instead choose to issue a No Action Letter (“NAL”) and waive the parties’ obligation to submit prescribed forms. A NAL essentially advises the parties that while the Competition Bureau has no current plans to challenge the transaction, it reserves the right to do so within one year of closing. However, parties normally rely on a NAL as it generally indicates that the transaction will not be subsequently challenged. My understanding is that the Competition Bureau has only ever challenged one transaction after issuing a NAL and even then it subsequently abandoned that challenge.
An ARC request does not trigger a statutory waiting period. However, the Competition Bureau has issued guidelines indicating that it will endeavor to complete its review of transactions that it considers to be “non-complex” within 14 days of receiving a complete ARC request, and within 45 days of receiving a complete ARC request for transactions that it considers to be “complex”.
Non-complex transactions are readily identifiable by the clear absence of competition issues and include transactions where there is no or minimal competitive overlap between the parties.
Complex transactions involve the merger of competitors or the merger of customers and suppliers where there are indications that the transaction may, or is likely to, create, maintain or enhance market power. The vast majority of transactions are classified as non-complex, with the Competition Bureau completing its review within 14 days following classification.
Filing Fees
The filing fee payable to the Competition Bureau is $50,000 and applies regardless of whether notification is effected by way of prescribed forms, ARC request or both.
Invitation for Discussion:
If you would like to discuss this blog in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Linmac LLP.
Disclaimer:
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.