The relevant merger control legislation is contained in the Competition Act (Act), a federal statute that applies across Canada. There is extensive additional guidance from the Competition Bureau (Bureau) in the form of guidelines, including:
This and other guidance is available at https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/home.
Other potentially relevant legislation for foreign transactions or investment or relating to particular sectors includes the following.
Investment Canada Act (ICA)
An acquisition of control by a non-Canadian of a Canadian business, and the establishment by a non-Canadian of a new Canadian business, is subject to notification or to review and approval according to a "net benefit to Canada" test. The net benefit to Canada test has regard to six factors, including the competitive effect of the investment. (The ICA also provides for a review of investments that could be injurious to national security.) The administrators of the ICA rely on the Bureau to assess competitive effects. Accordingly, such administrators share with the Bureau information in respect of investments that come to their attention. Where an acquisition of control is subject to a net benefit review under the ICA, clearance will usually not be possible under the ICA until the Bureau has cleared the transaction where the transaction is notifiable under Part IX of the Act.
Canada Transportation Act (CTA)
Transactions that “involve a transportation undertaking” and that are subject to pre-merger notification under the Act must also be notified to the Minister of Transport (as well as the Canadian Transportation Agency if the proposed transaction involves an air transportation undertaking) under the CTA. The Minister of Transport has 42 days from such notification to determine whether the proposed transaction “raises issues with respect to the public interest as it relates to national transportation.” Where the transaction is considered to raise such issues, a potentially lengthy review under the CTA is triggered and any order in respect of the transaction is made under the CTA and not the Act.
Broadcasting and Communications
Transactions involving broadcasting undertakings that are subject to review under the merger provisions of the Act may also be subject to review and approval by the Canadian Radio-television and Telecommunications Commission (CRTC). The CRTC and the Bureau have agreed to notify one another with respect to a review that is of significant public importance, but otherwise exercise their mandates separately. Similarly, transactions involving radiocommunication licence holders that are subject to review under the Act may also be subject to review by the Minister of Innovation, Science and Industry under the Radiocommunication Act.
With respect to mergers under the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act or the Trust and Loan Companies Act, where the Minister of Finance certifies, to the Commissioner of Competition (Commissioner), who heads the Bureau, the names of the parties and that the proposed merger is in the public interest, the Competition Tribunal (Tribunal) and therefore the Commissioner no longer have jurisdiction over that merger.
The Commissioner is responsible for the administration and enforcement of the Act. However, the Commissioner must refer matters that warrant criminal prosecution to the Director of Public Prosecutions. Civil reviewable matters – including mergers, abuse of dominance, competitor collaborations and various vertical restraints – are reviewed by the Tribunal on application by the Commissioner or, in certain instances, by private parties with leave of the Tribunal. Criminal prosecutions are brought by the Director of Public Prosecutions before the courts. Private civil actions are brought by individuals, and corporate and other entities before the courts.
Please refer to 1.2 Legislation Relating to Particular Sectors with respect to the ICA, CTA, broadcasting and communications legislation, and financial institution legislation.
The pre-merger notification provisions in Part IX of the Act provide that parties to a merger transaction of a specified type, and exceeding specified thresholds, must, subject to certain exceptions discussed below, provide the Commissioner with advance notice and specified information with respect to that transaction.
The obligation to file a pre-merger notification is on the “parties to the proposed transaction”. Please refer to 3.4 Parties Responsible for Filing.
Parties to a transaction may also seek clearance in the form of an advance ruling certificate (ARC) or a no action letter (NAL) from the Commissioner, even where the transaction is not subject to pre-merger notification. Such clearance will typically be sought in a non-notifiable transaction only where material competition issues exist.
There is a host of exemptions from the obligation to provide a pre-merger notification, including exemptions for:
Failure to file a merger pre-merger notification (without “good and sufficient cause”) when one is required is a criminal offence, punishable by a fine of up to CAD50,000. In addition, failure to comply with the mandatory waiting period (without good and sufficient cause) can result in a range of court orders (which would be publicly available), including orders:
Part IX of the Act requires parties to provide a pre-merger notification to the Commissioner in respect of the following categories of transaction, where specified thresholds are exceeded:
Notification is required only where an operating business is the subject of the transaction, whether directly or indirectly.
The Act contains an exemption from pre-merger notification for, among other things, transactions where all the parties to the transaction are affiliates of each other. Transactions or other operations not falling within the categories described above are not subject to pre-merger notification.
Mandatory pre-merger notification is required where certain dollar thresholds are crossed and is not based on "control". That said, in the case of a share transaction, an acquisition of voting shares resulting in ownership of more than 20% of the voting shares (if any of the corporation’s voting shares are publicly traded) or an acquisition of voting shares resulting in ownership of more than 35% of the voting shares (if none of the corporation’s voting shares is publicly traded) may trigger notification where specified dollar thresholds are exceeded. If the purchaser already owns more than 20% or 35%, as applicable, an acquisition of voting shares resulting in ownership of more than 50% of the voting shares may trigger notification where specified dollar thresholds are exceeded. A similar mechanism applies to the acquisition of an interest in a combination.
The pre-merger notification provisions contain two thresholds: a size of parties threshold and a size of transaction threshold. Both these thresholds must be exceeded for the transaction under consideration to be subject to mandatory pre-merger notification. The size of parties threshold is set at CAD400 million. That is, there is no requirement to provide pre-merger notification unless the parties to the transaction, including their affiliates, (i) have assets in Canada that exceed CAD400 million in aggregate book value; or (ii) have annual gross revenues from sales in, from or into Canada that exceed CAD400 million in aggregate value.
Even where the size of parties threshold is exceeded, the pre-merger notification provisions will not apply to a proposed transaction unless the size of transaction threshold is exceeded. This threshold includes a requirement that assets in Canada or annual gross revenues from sales in or from Canada exceed CAD96 million (2020 threshold). The size of transaction threshold is indexed to changes in the Canadian gross domestic product and revisions to the threshold are published annually.
There are aspects of this threshold that vary, depending on the type of transaction, as follows.
Pre-merger notification is required in respect of a proposed acquisition of any of the assets in Canada of an operating business where the aggregate book value of the assets proposed to be acquired, or the annual gross revenues from sales in or from Canada generated from those assets, exceeds CAD96 million (2020).
Acquisition of Voting Shares of a Corporation
Pre-merger notification is required in respect of a proposed acquisition of the voting shares of a corporation that carries on an operating business, or controls a corporation that carries on an operating business, where the target corporation and any corporations controlled by that corporation have assets in Canada with an aggregate book value, or have annual gross revenues from sales in or from Canada generated from those assets, exceeding CAD96 million (2020).
In addition to exceeding the CASD96 million (2020) threshold, acquisitions of shares must exceed thresholds relating to the percentage of the voting shares of the target that the acquirer acquires to be subject to pre-merger notification. In the case of public companies, the transaction is only notifiable if, following the transaction, the acquirer will own shares carrying more than 20% of the votes attached to all outstanding voting shares of the corporation. If the acquirer already owns more than 20% then the transaction is notifiable only if the transaction will increase the acquirer’s interest to more than 50% of the votes. In the case of private companies, the thresholds are more than 35% of the votes, or if the acquirer already owns more than 35%, more than 50%. The interest owned by the acquirer includes any interest owned by any of the acquirer’s affiliates.
Pre-merger notification is required in respect of a proposed amalgamation of two or more corporations where (i) one or more of those corporations carries on an operating business, or controls a corporation that carries on an operating business, where the aggregate book value of the assets in Canada that would be owned by the continuing corporation that would result from the amalgamation or by corporations controlled by the continuing corporation, or the annual gross revenues from sales in or from Canada generated from such assets, exceed CAD96 million (2020); and (ii) each of at least two amalgamating corporations, together with its affiliates, has assets in Canada or annual gross revenues from sales in, from or into Canada in excess of CAD96 million (2020).
Formation of a Combination
Pre-merger notification is required in respect of a proposed combination of two or more persons to carry on business other than through a corporation where one or more of those persons propose to contribute to the combination assets that form all or part of an operating business carried on by those persons, or corporations controlled by those persons, and where the aggregate book value of the assets in Canada that are the subject matter of the combination, or the annual gross revenues from sales in or from Canada generated from those assets, exceeds CAD96 million (2020).
Acquisition of an Interest in a Combination
Pre-merger notification is required in respect of a proposed acquisition of an interest in a combination that carries on an operating business other than through a corporation where the aggregate book value of the assets in Canada that are the subject matter of that combination, or the annual gross revenues from sales in or from Canada generated from those assets, exceeds CAD96 million (2020) and as a result of the proposed acquisition the persons acquiring the interest, together with their affiliates, would hold an aggregate interest in the combination that entitles the persons to receive more than 35% of the profits of the combination, or more than 35% of its assets on dissolution, or, where the persons acquiring the interest are already so entitled, to receive more than 50% of such profits or assets.
The jurisdictional thresholds set out above apply to all sectors.
The asset and revenue thresholds discussed in 2.5 Jurisdictional Thresholds are to be determined based on the aggregate book value of the assets and the annual gross revenues reported in the most recent audited financial statements of the parties and, as applicable, their affiliates, provided the end of the period covered by the statements is not more than 15 months prior to the reference date for the transaction. The "reference date" is the date on which a notification is filed in respect of the transaction or, if no notification is filed, the 30th day preceding the date on which ownership of any property that is the subject of the transaction is transferred, or, in the case of an amalgamation, articles of amalgamation are filed. Assets and revenues determined based on the most recent financial statements are subject to adjustment to reflect any subsequent transactions or events that would affect whether notification is required.
If audited financial statements are not available, assets and revenues must be determined in accordance with the books of the person, adjusted as necessary to comply with generally accepted accounting principles, and for the most recent date that the amounts can reasonably be determined, provided that the date is within three months of the reference date.
Amounts reported in foreign currency are to be converted to Canadian dollars, based on the noon exchange rate quoted by the Bank of Canada for the date on which the value of the assets is determined, or the last day of the annual period used to determine revenues.
Application of the size of parties and size of transaction thresholds discussed in 2.5 Jurisdictional Thresholds requires consideration of the assets and revenues of the parties and their affiliates, the amalgamated corporation or combination and, in some cases, the corporations they control. Entities are affiliated if one is a subsidiary of the other, they are subsidiaries of the same corporation, they are both controlled by the same person, or they are affiliated with the same entity. The Act defines subsidiaries in terms of control.
A corporation is deemed to be controlled by a person that directly or indirectly holds securities of the corporation to which are attached more than 50% of the votes that may be cast to elect directors of the corporation and which, if exercised, would be sufficient to elect a majority of the directors of the corporation. At present, a partnership or sole proprietorship is affiliated with another such entity or a corporation only if both are controlled by the same person and there is currently no provision for affiliation with or between trusts. A partnership is controlled by a person that is entitled to receive more than 50% of the profits of the partnership or more than 50% of its assets on dissolution. (Please see 2.6 Calculations of Jurisdictional Thresholds for a discussion of adjustments for changes or events since the date of the financial statements used to determine assets and revenues.)
Foreign-to-foreign transactions are subject to notification only if the thresholds relating to assets in Canada, or sales in, from or into Canada, are satisfied. If these thresholds are not satisfied, the Commissioner could seek a remedy should he or she determine that the merger has resulted in, or is likely to result in, a substantial lessening or prevention of competition in any relevant market in Canada.
Market share is not employed to establish notifiability in Canada.
A joint venture may trigger mandatory pre-merger notification depending on how it is structured. For example, a joint venture that involves the acquisition of assets or shares may be subject to pre-merger notification where the size of the parties and of the transaction thresholds specified in 2.5 Jurisdictional Thresholds are exceeded. Furthermore, a joint venture that involves a sufficiently large combination may trigger mandatory pre-merger notification where the thresholds specified in 2.5 Jurisdictional Thresholds are exceeded.
Note, however, that a combination is exempt from pre-merger notification if:
Joint ventures that do not trigger mandatory pre-merger notification may nonetheless be subject to the substantive merger review provisions. Alternatively, non-notifiable joint ventures may be subject to substantive review under Section 90.1 of the Act that deals with competitor collaborations. Under those provisions, the Commissioner may apply to the Tribunal for an order prohibiting any person from doing anything under an agreement or arrangement between competitors or potential competitors that prevents or lessens, or is likely to prevent or lessen, competition substantially in a market. This is the same substantive test as the one applied to mergers. As in the case of mergers, relief under the civil competitor collaboration provisions is barred where there are, or are likely to be, gains in efficiency that are greater than and offset any anti-competitive effects resulting from the collaboration. However, certain joint ventures that are non-corporate combinations (including partnerships and trusts) created pursuant to agreements that provide for the termination of the joint venture at the end of a project are also exempt from remedial orders by the Tribunal under the merger provisions of the Act.
That said, joint ventures between competitors may be subject to review and challenge under the civil competitor collaboration or criminal conspiracy provisions of the Act.
A transaction that is not subject to pre-merger notification may nevertheless be subject to review and challenge under the substantive merger provisions found in Part VIII of the Act (discussed in 4.1 Substantive Test). Subject to specified exceptions, all transactions that fall within the definition of merger may be reviewed pursuant to Part VIII. The Commissioner has the power to investigate and challenge any merger captured by the Act, whether subject to pre-merger notification or not, up to one year after the merger has been substantially completed.
Transactions subject to pre-merger notification may not be completed before the expiration of the applicable waiting period. Please refer to the discussion in 2.2 Failure to Notify, in relation to waiting periods and penalties applicable where closing occurs prior to such expiration.
Transactions subject to pre-merger notification may not be completed before the expiration or waiver of the applicable waiting period. The waiting period is 30 days following receipt by the Commissioner of complete pre-merger notification materials, provided the Commissioner has not issued a SIR that triggers a new 30-day waiting period commencing upon satisfaction of the SIR. While the receipt of complete notification materials from all parties to a transaction is generally required to commence the waiting period, in the case of an unsolicited takeover bid, the 30-day waiting period begins upon receipt of notification materials from the party seeking to acquire the shares.
In general, if multiple SIRs are issued, the new waiting period commences on receipt of complete responses to all SIRs issued. These waiting periods may, however, be waived by the Commissioner.
Please refer to 2.2 Failure to Notify for a discussion of the penalties payable for closing prior to expiry of the waiting period.
There are no general exceptions to the statutory waiting periods for transactions that are subject to pre-merger notification. The Commissioner may waive the notification period and will do so if the Bureau concludes that the proposed transaction is not likely to prevent or lessen competition substantially in any relevant market in Canada. (See also the discussion in 3.8 Review Process regarding the administrative schedule followed by the Bureau in reviewing mergers.)
As discussed above, transactions subject to pre-merger notification may not be completed prior to expiry of the applicable waiting period without waiver by the Commissioner. Following expiry of the waiting period, parties may close a transaction unless they have entered into a timing agreement with the Commissioner or the Commissioner has sought and obtained an order under the Act enjoining closing of the transaction.
Consent agreements to address anti-competitive effects of a merger identified by the Commissioner may include a hold separate requirement, pending completion of the agreed remedy or, in some cases, the determination of the appropriate remedy, and may be employed to permit a global closing even though the remedy in Canada has not been implemented or, in some cases, even determined.
Unless an ARC or NAL is issued, a transaction that is subject to mandatory pre-merger notification may not be completed until the 30-day waiting period has expired, and then only if the Commissioner has not issued a SIR that triggers a new 30-day waiting period commencing upon satisfaction of the SIR.
A SIR is usually issued only where a proposed transaction raises significant competition issues and additional information is required.
Notwithstanding the statutory waiting periods provided in the Act, the Bureau follows an administrative schedule in its review of mergers that can be longer than the statutory waiting period. In its Fee and Service Standards Handbook for Mergers and Merger-Related Matters, the Bureau has provided maximum “service standard” review periods for transactions of up to 14 days for “non-complex” transactions and 45 days for “complex” transactions. These periods are only guidelines as to the maximum amount of time the Bureau will need to review the proposed merger. Actual review periods may involve less or more time.
The complexity level of a transaction for the purposes of the administrative schedule is based on various factors. Factors that tend to indicate a complex merger include:
The failure of a party to notify the Commissioner of a proposed notifiable transaction is an offence under the Act. Where a corporation commits the offence, any officer, director or agent of the corporation who directed, authorised, assented to, acquiesced in or participated in the commission of the offence is a party to and guilty of the offence, and is liable to the punishment provided for the offence whether or not the corporation has been prosecuted or convicted. These penalties are made public. In May 2015, the Bureau announced that charges were not laid against a company that failed to notify the Commissioner of two notifiable transactions. The company immediately reported its failure to notify once it learned that it should have and agreed to develop a compliance programme that included a company requirement to seek a legal opinion on all proposed transactions exceeding CAD5 million in value to determine if they are subject to pre-merger notification.
A binding agreement is not required prior to pre-merger notification being made. Parties may file on the basis of, for example, a letter of intent or memorandum of understanding. That said, there is some risk that if the transaction that is ultimately agreed varies materially from the transaction in respect of which notification is made, a further notification will be required.
The filing fee in respect of an ARC application or pre-merger notification is CAD75,055.68 (2020). If an ARC application and a pre-merger notification are submitted in respect of the same transaction, only the fee for an ARC is payable.
Guidance from the Bureau states that the filing fee should be submitted at the time of the filing. However, failure to provide payment with the filing will not affect the commencement of the statutory waiting period or internal service standard.
Parties responsible for filing are the parties to a transaction. In the case of a share purchase, the parties are the acquirer and the target. In asset purchase transactions, the parties are the acquirer and the vendor. In the case of an amalgamation, the parties are the amalgamating entities. In the case of a combination, the parties are the persons proposing the combination. In the case of an acquisition of an interest in a combination, the parties are the acquirer, and the combination whose interest is to be acquired.
The "acquiring party" in the case of a share purchase, an asset purchase or an acquisition of an interest in a combination consists of one person, or two or more persons acting pursuant to an agreement or arrangement.
Section 16 of the Notifiable Transactions Regulations sets out the requirements of a notification. They include:
Although not prescribed, a competitive impact statement is almost universally filed in notifiable transactions. Often, it takes the form of a request for an ARC or a NAL. The statement is an advocacy document submitted by the parties in support of their view of the competitive effects of the transaction.
Notifications and requests for an ARC or NAL may be submitted in English or French. Documents that must be submitted with a notification that are not in English or French need not be translated for the purposes of the filing. Foreign-language documents responsive to a SIR must be translated into English or French, and the original document and translation must be included in the SIR response.
A pre-merger notification filing as well as materials filed in response to a SIR must be certified for correctness and completeness on oath or solemn affirmation by an officer of the corporation or a person authorised by the board of directors of the corporation that is making the filing, or, if the filing is by a non-corporate entity, by an individual who serves in a capacity similar to a corporate officer or other individual authorised by the governing body of the entity.
Parties to a proposed transaction are precluded from completing the transaction until the expiration of the applicable statutory waiting period under the Act. There is an initial waiting period of 30 days following the day on which the information required to be submitted by the parties to a proposed transaction is received by the Bureau; an incomplete notification filing fails to initiate the 30-day waiting period.
An officer or other person duly authorised on behalf of the notifying party must certify that, to the best of that individual’s knowledge and belief, all information contained in the notification is correct and complete in all material respects. If the notifying party is deemed to have supplied information that is incorrect or incomplete in a material respect, that party could be found to be preventing or attempting to impede or prevent an inquiry or examination under Section 64 of the Act, the penalty for which is a fine whose amount is in the discretion of the court and/or imprisonment for a term not exceeding ten years (indictable); or a fine not exceeding CAD100,000 and/or imprisonment for a term not exceeding two years (summary). That party could also face criminal prosecution for knowingly swearing a false certificate.
In practice, such cases are uncommon.
Note that an ARC is effective only if the facts are the same or substantially the same as those on which the ARC was issued. There has been one reported case where the Bureau rescinded a previously issued ARC because it was later discovered that the information received in connection with the ARC application was materially misleading.
Parties to a proposed transaction are precluded from completing the transaction until the expiration of the applicable statutory waiting period under the Act. In particular, a completed notification filing triggers an initial 30-day waiting period during which time the parties to the proposed transaction are precluded from completing the transaction. The Commissioner may, within the initial 30-day waiting period, issue an additional request for information through a SIR. The issuance of a SIR to one or more of the parties triggers a second 30-day waiting period, which commences only when the Commissioner has received from each SIR recipient a certified completed response to the SIR. During the second 30-day waiting period, the parties are precluded from completing the transaction.
Requests for information, whether through a SIR or informally, are not uncommon and can be time consuming to respond to.
The Bureau has developed a non-binding service standard, within which it will endeavour to complete its review of a proposed transaction (described in 3.11 Accelerated Procedure).
The Bureau encourages pre-notification discussions with parties. Pre-notification discussions allow parties to provide informal notice to the Bureau that a notification is forthcoming. Parties may also engage with the Bureau on a "names" or "no-names" basis to seek initial guidance about a proposed merger. However, the Bureau will not provide any substantive guidance until the parties have submitted an ARC request or filed notifications.
The Act requires that all information provided to or obtained by the Bureau remains confidential. However, the Act contains exceptions that allow the Bureau to share information and documents received with a Canadian law enforcement agency or for the purposes of administration or enforcement of the Act. The Bureau takes the view that this permits it to share information with relevant foreign competition authorities. In the context of pre-notification discussions with the Bureau, the risk of disclosure of confidential information is low.
The Bureau commonly issues written information requests during its review process. Parties must respond within three business days (for transactions the Bureau has designated non-complex), or within five business days (for transactions the Bureau has designated complex). If the parties do not respond before expiration of the applicable three-day or five-day period, the Bureau may, on the following day, pause the non-binding service standard period (discussed in 3.11 Accelerated Procedure) until receipt of the information requested.
The Bureau has non-binding service standards that represent the maximum time within which the Bureau will endeavour to advise parties of the Bureau’s position in respect of a particular transaction. The service standards vary according to the complexity of the merger and assume co-operation from the parties. The Bureau aims to provide a response to notifications and ARC requests within these service standard periods.
For non-complex mergers, the Bureau’s service standard is 14 calendar days, commencing on the day that a complete notification or ARC request is received by the Commissioner. For complex mergers, the service standard is 45 calendar days. However, where the Bureau issues a SIR, the service standard is 30 calendar days and commences on the day on which the Commissioner has received a complete response to the SIR from all SIR recipients.
In practice, where circumstances permit (for example, a relatively straightforward transaction combined with the absence of substantive competition issues), the Bureau has cleared transactions more swiftly than the service standard period, but early clearance cannot be assumed. Early outreach to the Bureau is advisable in cases where early clearance is necessary.
Under the Act, the Tribunal may, on application of the Commissioner, issue an order in respect of a proposed or completed merger where it is found to have substantially prevented or lessened competition (SPLC)or is likely to do so. The MEGs state that this test is satisfied by a merger only when it is likely to create, maintain or enhance the ability of the merged entity to exercise market power.
As noted in the MEGs, market power can be exercised unilaterally or in co-ordination with other competitors. A unilateral exercise of market power arises when a merger enables the merged entity to raise prices profitably or profitably influence other dimensions of competition without relying on any accommodating response from its competitors. Conversely, a co-ordinated exercise of market power arises where a merger reduces competitive vigour in a market due to accommodating responses from other competitors.
Factors Giving Rise to an SPLC
The Act expressly states that an SPLC cannot be found to exist based merely upon evidence of concentration or market share. In this regard, the Act identifies a non-exhaustive list of factors that the Tribunal (and hence the Bureau) may consider in evaluating whether a merger gives rise to an SPLC. Several of these factors, and others identified in the MEGs, are set out below.
The existence of barriers to entry and the effect of the transaction on such barriers
The Tribunal will assess the likelihood of timely entry in the relevant market on a sufficient scale to constrain a material price increase or other change in the relevant market as a result of the merger. Entry can come from a variety of sources, including expansion by firms already in the market, entry by firms on the fringe of the market that have assets that can be readily converted into producing and selling the relevant products, firms selling the relevant products in adjacent geographic markets, and de novo entry. Other relevant factors include the need to incur sunk costs and regulatory requirements or controls.
Whether there will be effective competition remaining after the merger
The collective influence of all sources of competition in the market is assessed to determine whether they will be able to act as a constraining factor against the exercise of market power by the merged entity acting unilaterally or interdependently with other participants in the market. If the merging parties are key competitors of one another, it may be that effective competition remaining after the merger will be imperilled.
Whether the proposed transaction will eliminate a vigorous and effective competitor
Among other things, the acquired firm will be analysed for any uniquely competitive (namely, “maverick”) attributes, such as whether it is innovative in some way, is known for aggressive pricing strategies, has a history of not following price leadership, is a disruptive force in an otherwise interdependent environment, offers unique service or warranty benefits, or appears to have made impressive gains in market share. Acquisition of a maverick by a leading competitor will, all other things being equal, be regarded as more problematic than an acquisition of a less vigorous and effective competitor.
Whether one of the merging firms can be characterised as a “failing or exiting firm”
Consideration is also given to whether one of the merging entities would fail or exit the industry if the merger were not to occur. A firm’s likely failure or exit from a market will influence the determination of whether an SPLC will arise because the loss of the acquired firm as a competitor cannot necessarily be attributed to the merger.
The extent to which foreign products or foreign competitors provide, or are likely to provide, effective competition to the business of the merging parties
The presence and viability of foreign competition to counter the increased market power of the merged entity is examined with regard to factors such as the existence of tariffs, regulations and other impediments for foreign businesses in Canada.
The nature and extent of change and innovation in a relevant market
While change and innovation are considered in relation to other evaluative criteria, a separate analysis is also undertaken with respect to the general impact that change (for example, technological change) and innovation may have on competition.
Countervailing market power of buyers
Buyers may constrain the merged entity’s market power if, among other things, they can immediately switch to other suppliers, if they can vertically integrate their operation into the upstream market and if there are potential suppliers not already in the market who may be enticed into entry by orders from buyers switching from the merged entity. The MEGs also identify possible harm to competition resulting from vertical mergers, namely input and customer foreclosure, and increased likelihood of co-ordinated effects.
According to the MEGs, the Bureau does not assume that the merging parties operate in the same relevant market(s), even when there appears to be some overlap between their products and the geographic areas in which they conduct business.
Market definition is based on substitutability and focuses on demand responses to changes in relative prices after the merger. The ability of competitive suppliers to respond to a price increase is also important when assessing the potential for the exercise of market power, but the Bureau examines such responses later in the analysis, either when identifying the participants in the relevant market or when examining entry into the relevant market.
Conceptually, a relevant market is defined as the smallest group of products, including at least one product of the merging parties, and the smallest geographic area, in which a sole profit-maximising seller (a “hypothetical monopolist”) would impose and sustain a small but significant and non-transitory increase in price above levels that would likely exist in the absence of the merger.
The Bureau has established the following thresholds to identify and distinguish mergers that are unlikely to have anti-competitive consequences from those that require more substantive analysis:
With respect to multi-jurisdictional merger reviews, the Bureau often co-operates extensively with foreign agencies, including discussing approaches to market definition. This aside, foreign case law can be persuasive before the Bureau and the Tribunal, particularly where there is no or limited Canadian jurisprudence in relation to the relevant market.
The Bureau will investigate all relevant theories of competitive harm, including those based on unilateral effects and co-ordinated effects in relation to horizontal mergers, vertical foreclosure in relation to vertical mergers and portfolio effects in relation to conglomerate mergers. That said, portfolio effects rarely, if ever, give rise to significant concerns.
See 4.1 Substantive Test.
The Act provides that the Tribunal may not make an order in respect of a merger if it finds that the merger is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that will result, or is likely to result, from the merger, and that the gains in efficiency would not be likely to be attained if the order were made. This provision was the subject of extended litigation in the Superior Propane and Tervita cases, and the law resulting from those decisions and the related enforcement policy are complex. The essential point to note under the current law is that efficiencies are relevant and ought to be identified, at least in general terms, at the outset and explored in detail if the merger under consideration may give rise to an SPLC.
The purpose of the Act is to maintain and encourage competition in Canada in order to achieve a number of goals that are broadly consistent with the promotion of competition. Consistent with this, intervention under the Act with respect to mergers is limited to those mergers that prevent or lessen, or are likely to prevent or lessen, competition substantially in a market. This is the only test that the Commissioner is permitted to apply under the Act and, in practice, is the only test that is applied, save that (i) in the application of the efficiencies defence, socially adverse effects of a merger may be considered and (ii) public interest tests may be invoked and override the test under the Act where a public interest review is triggered under the CTA and where a financial institution merger is found to be in the public interest by the Minister of Finance.
As discussed in the response to 1.2 Legislation Relating to Particular Sectors, some transactions may be subject to review under the ICA and/or sectoral legislation that require the consideration of other public interest issues, including industrial and cultural policy, and national security.
Joint ventures are assessed with reference to the criteria identified above, including whether the proposed joint venture is likely to result in an SPLC in a relevant market. Please refer to 2.10 Joint Ventures.
In the case of a proposed merger, the Tribunal has authority under the Act on application of the Commissioner to order the merging parties or any other person not to proceed with all or part of the proposed merger and to prohibit any act or matter that is necessary to ensure that the merger does not result in an SPLC, should all or part of the merger proceed. In the case of a completed merger, the Tribunal may order dissolution of the merger or direct the disposition of designated assets or shares.
In addition, with the consent of the person against whom the order is directed and the Commissioner, the Tribunal may order any party to the merger or other person to take any other action.
The Commissioner has negotiated and obtained a broad range of remedies to address expected competitive harm through consent agreements, including structural remedies (generally asset divestitures) and quasi-structural or behavioural remedies (such as licensing of IP rights and non-discriminatory access to facilities or supply).
The Commissioner can also seek an interim order delaying the completion or implementation of the proposed merger for a certain period to allow the Bureau to complete its review. If the Commissioner commences an application challenging a proposed merger, the Commissioner can also seek an interim order preventing the completion of a proposed merger, in whole or in part, pending the disposition of the application.
Typically, if the Bureau determines that a merger has resulted, or is likely to result, in an SPLC, it will seek to negotiate a consent agreement that addresses the SPLC through remedies. A consent agreement that is registered with the Tribunal has the same force and effect as a Tribunal order.
There are two broad types of merger remedies: structural remedies and behavioural remedies. Structural remedies directly intervene in the competitive structure of a market, such as dissolution and divestitures. A behavioural remedy modifies or constrains the behaviour of the merging firms. It is normally ongoing and may require monitoring and enforcement. The Bureau generally prefers structural remedies over behavioural remedies.
Where a negotiated resolution cannot be achieved, the Commissioner may file an application with the Tribunal for a remedy in respect of the merger. The Commissioner must establish that the merger has resulted, or is likely to result, in an SPLC. As discussed in 4.5 Economic Efficiencies, it is open to the merging parties to defend the merger on the grounds that it is likely to bring about gains in efficiency that are greater than and will offset any SPLC.
The standard for achieving an acceptable remedy is set out by the Supreme Court in Canada (Director of Investigation and Research) v Southam Inc. In this case, the Supreme Court concluded that “the appropriate remedy for a substantial lessening of competition is to restore competition to the point at which it can no longer be said to be substantially less than it was before the merger.”
Eliminating an SPLC sometimes means that the remedy must go beyond that which is necessary to restore competition to an otherwise acceptable level. To this end, the Supreme Court, in Southam, emphasised the importance of ensuring that the remedy fully eliminates the SPLC: “[i]f the choice is between a remedy that goes farther than is strictly necessary to restore competition to an acceptable level and a remedy that does not go far enough even to reach the acceptable level, then surely the former option must be preferred. At the very least, a remedy must be effective. If the least intrusive of the possible effective remedies overshoots the mark, that is perhaps unfortunate, but from a legal point of view, such a remedy is not defective.”
Structural remedies and, in particular, divestitures are the most common forms of remedy used to address an SPLC. That said, structural remedies are often complemented with behavioural remedies (eg, interim supply arrangements) and/or quasi-structural remedies (eg, licence agreements), and behavioural and/or quasi-structural remedies are occasionally imposed on a standalone basis. Remedies under the Act are not used to address non-competition issues.
Parties can seek to negotiate remedies with the Bureau as soon as they advise the Bureau of a proposed transaction. As a practical matter, however, the Bureau will seek to negotiate remedies with the merging parties as soon as the Commissioner concludes that the merger is likely to result in an SPLC. Negotiated remedies are invariably reflected in a "consent agreement" registered with the Tribunal. Once registered, a consent agreement has the force of a Tribunal order.
If competition concerns cannot be resolved between the Commissioner and the merging parties, the Commissioner will typically commence an application before the Competition Tribunal to challenge the merger under Section 92 of the Act. In such circumstances, the Commissioner may also seek interim relief pending the disposition of the application.
An effective remedy is based on the specific circumstances of the case and theory of competitive harm as determined by the Commissioner or, in contested cases, by the Tribunal. Further, remedies must generally also be enforceable and capable of timely implementation so that the SPLC can be eliminated as quickly as possible. Accordingly, in the case of a divestiture (which, as noted, is the most common form of remedy), an acceptable buyer of the divested assets is generally provided with the assets necessary to eliminate the SPLC as quickly as possible. In the case of a consent agreement, the divested assets and an acceptable buyer (or a process for appointing an acceptable buyer) are provided for in the consent agreement.
As noted, remedies are normally prescribed by way of a consent agreement registered with the Tribunal (which, as noted, takes the form of a court order) and less commonly by way of an order of the Tribunal after a contested proceeding. In either case, remedies not complied with can give rise to an order of contempt.
Remedies can provide for closing before required divestitures are effected.
The Bureau advises the merging parties of the Commissioner’s conclusions regarding a proposed merger. Except where the Tribunal issues a decision in respect of a contested proceeding, no formal decision is issued. However, the Bureau routinely issues "position statements" in respect of noteworthy mergers it reviews, available at https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/h_00173.html. Such position statements summarise the issues the Bureau identified and explain its rationale for the ultimate disposition of the merger.
The Bureau lists on its website its concluded merger reviews where a pre-merger notification is made by the merging parties and/or a request was made for an advance ruling certificate.
The Bureau often requires remedies in relation to foreign-to-foreign transactions; that said, the Bureau may rely on remedies agreed upon in other jurisdictions where such remedies fully address the Bureau’s concerns.
Examples of remedies that the Bureau has recently required in foreign-to-foreign transactions include the following.
Merger Between Linde AG and Praxair, Inc
On 1 June 2017, Linde AG and Praxair, Inc announced a business combination agreement in an all-stock merger of equals transaction. The Bureau determined that the merger would likely result in an SPLC in markets for the supply of specific industrial gases in Canada, leaving customers in most instances with only two competitive supply options. On 26 October 2018, the Commissioner entered into a consent agreement with the merging parties, which required Linde AG to divest all its Canadian business to a purchaser acceptable to the Commissioner. Linde AG’s Canadian business formed part of the parties’ Americas divestiture package that also included assets of the parties in the USA and South America.
Bayer AG’s Acquisition of Monsanto Company
On 14 September 2016, Bayer AG agreed to acquire Monsanto Company. The Bureau concluded that the acquisition would likely give rise to an SPLC in the supply of canola seeds and traits because (i) direct competition and innovation rivalry between the parties in the supply of canola seeds would be eliminated, which would increase prices for growers and reduce the scope and rate of innovative activity directed towards the development of specific canola varieties; and (ii) the merged entity would likely have an incentive to increase royalty rates to competing seed companies significantly. On 30 May 2018, the Commissioner entered into a consent agreement with Bayer AG to remedy the likely SPLC. The agreement required Bayer AG to divest to a purchaser acceptable to the Commissioner the company’s canola seeds and traits business.
Evonik Industries AG’s Acquisition of PeroxyChem Holding Company LLC
On 7 November 2018, Evonik Industries AG (Evonik) agreed to acquire PeroxyChem Holding Company LLC (PeroxyChem) for USD625 million. The acquisition included PeroxyChem’s hydrogen peroxide facility in Prince George, British Columbia. The Bureau concluded the acquisition would likely give rise to an SPLC in the supply of hydrogen peroxide in Western Canada because:
On 28 January 2020, the Commissioner entered into a consent agreement with Evonik to remedy the likely SPLC. As a result of the Consent Agreement, Evonik agreed to divest the Prince George facility to United Initiators, a global specialty chemical manufacturer based in Pullach, Germany. Notably, the Bureau’s review stretched over ten months and involved extensive co-ordination with the US Federal Trade Commission given that the merging parties’ production facilities in Western Canada supplied customers in both Western Canada and the Pacific Northwest of the USA.
Where ancillary restraints form part of the merger transaction, they must be disclosed and are taken into account by the Bureau in its assessment of the transaction and may affect any remedy that is ultimately agreed or imposed. Separate notifications of ancillary restraints forming part of the merger transaction are not required.
Further, any person may apply to the Bureau, with supporting information, for an opinion on the applicability of any provision of the Act to conduct or a practice that the person seeking the opinion proposes to engage in, including ancillary restraints. If the material facts provided to the Commissioner are accurate, the Commissioner’s written opinion is binding on the Commissioner so long as the material facts on which the opinion was based remain substantially unchanged and the conduct or practice is carried out substantially as proposed.
The Bureau generally solicits comments on a proposed transaction from third parties – including customers, suppliers and/or competitors – and will consider comments or complaints submitted by third parties. Third parties have no access to information that has been filed by the parties or others, or that is otherwise received by the Bureau for the purposes of its analysis, and have no right to participate in meetings or discussions between the Bureau and parties. If the Commissioner files an application with the Tribunal, third parties may seek intervenor status in the proceeding and may participate in the proceeding in accordance with any directions of the Tribunal granting intervenor status. The test for intervenor status requires demonstration of a direct interest in, and unique or distinct perspective on, the proceeding.
The Bureau typically reaches out to third-party "market contacts" for the purposes of assessing the competitive impact of a proposed merger and takes the position that the waiting period does not commence until it is permitted to make such third-party market contacts.
The outreach by the Bureau usually takes the form of emails and calls.
The Bureau market tests remedies offered by the parties.
The Bureau publishes a monthly report of concluded merger reviews on its website: https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02435.html. The merger review register is updated on or after the 10th calendar day of each month for merger reviews completed during the previous month. The information included in the merger review register is limited to the names of parties to the transaction, the applicable four-digit code pursuant to the North American Industry Classification System 2017 and the result of the merger review (that is, whether the review resulted in the issuance of an ARC, a NAL, the registration of a Consent Agreement or a judicial decision).
Information obtained or provided pursuant to a pre-merger notification or ARC application is afforded confidential treatment. This confidentiality protection does not apply to the communication of such information by the Bureau to a Canadian law enforcement agency or for the purposes of the administration or enforcement of the Act. Information that has been made public also loses confidential treatment. Importantly, the Bureau takes the view that it does not require a waiver to supply information it receives to the competition authorities of other jurisdictions.
The Bureau operates under a number of co-operation arrangements with foreign competition authorities to facilitate the exchange of information and the co-ordination of investigations and remedies sought by the authorities in respect of mergers involving multiple jurisdictions. In these cases, the Bureau often requests waivers permitting it to access confidential information filed with foreign authorities. The Bureau takes the view that it does not require the consent of merging parties to share information obtained from such parties with foreign authorities.
Decisions of the Tribunal are subject to appeal to the Federal Court of Appeal as of right on issues of law and jurisdiction, and with permission of the court on issues of fact.
Appeals arising from decisions of the Tribunal are generally disposed of approximately 8 to 16 months from the date the Tribunal made its decision. The most recent appeal of a contested merger was Tervita Corp v Canada (Commissioner of Competition) 2015 SCC 3, where the Supreme Court of Canada reversed the decision of the Competition Tribunal and the Federal Court of Appeal.
Pursuant to the Competition Tribunal Rules, a third party must seek leave from the Tribunal to obtain intervenor status. For example, in 2011, the Tribunal made an order granting WestJet intervenor status for the purpose of addressing a list of pre-defined topics in The Commissioner of Competition v Air Canada, United Continental Holdings Inc, United Airlines Inc and Continental Airlines Inc. In this case, WestJet was permitted, in relation to the pre-defined list of topics, to:
There have been no recent cases where a third party successfully appealed a decision of the Tribunal.
On 1 May 2018, the Act’s affiliation provisions were amended. The Act now includes a new definition of "entity" that more completely captures ownership by and of non-corporate organisations. As a result of the amendments, transactions between parties that were related but not previously considered "affiliates" under the Act are no longer notifiable. In addition, the Bureau has recently released salient non-statutory instruments impacting merger review, including revised Intellectual Property Enforcement Guidelines reflecting the general practice of the Bureau’s Mergers Directorate when the primary remedy is a divestiture.
In March 2018, the Bureau released a draft Practical Guide to Efficiencies Analysis in Merger Reviews for public consultation. As discussed below, the Commissioner recently stated that the Bureau will change its approach to merger reviews where parties request that the Commissioner exercise enforcement discretion not to challenge a likely anti-competitive merger based on the efficiencies defence. Specifically, the Bureau will place more emphasis on testing evidence underlying efficiencies claims.
In 2018-19, of the 209 merger reviews that were commenced, five were resolved by consent agreements and one was abandoned due to competition concerns.
In 2017-18, of the 247 merger reviews that were commenced, six were resolved by consent agreements.
In 2016-17, of the 234 merger reviews that were commenced, eight were resolved by consent agreements and one was abandoned due to competition concerns.
Current concerns include non-notifiable mergers that "fly under the radar" and avoid scrutiny before the expiration of the one-year limitation period (following substantial completion of the transaction);
Notable trends include:
Another important development is the first public interest review pursuant to the Canada Transportation Act (CTA). The proposed merger between two Northern Canadian airlines, Canadian North Inc. and Bradley Air Services Limited, was the first time the Minister of Transport directed a public interest review pursuant to the CTA. As result, the Commissioner was required to provide, to the Minister of Transport and the parties to the proposed transaction, a report on any concerns regarding potential prevention or lessening of competition that may occur as a result of the proposed transaction. The Bureau issued its report under the CTA to the Minister on 25 February 2019. In its report, the Bureau concluded the proposed merger represented a “merger to monopoly” and was “likely to result in a substantial lessening of competition with respect to the provision of passenger travel services on all overlapping origin-destination pairs.” Notwithstanding the Bureau’s concerns, the government approved the proposed merger, subject to a several terms and conditions, on 16 June 2019.
Please refer to 1.2 Legislation Relating to Particular Sectors with respect to transactions related to transportation undertakings.
COVID-19 is a major concern for the competition authorities, both in terms of process (delays inherent in working remotely) and in terms of substance (transactions likely to give rise to SPLC in relation to critical goods and services).