Merger control in Canada: overview

A Q&A guide to merger control in Canada.

The Q&A gives a high level overview of merger control, regulatory framework and regulatory authorities, relevant triggering events and thresholds in Canada. It also covers notification requirements, procedures and timetables, publicity and confidentiality, third party rights, substantive test, remedies, penalties, appeals, joint ventures and proposals for reform.

For information on restraints of trade, monopolies and abuses of market power in Canada, visit Restraints of trade and dominance in Canada: overview.

This Q&A is part of the multi-jurisdictional guide to competition and cartel leniency. For a full list of jurisdictional Merger Control Q&As visit www.practicallaw.com/mergercontrol-mjg. For a full list of jurisdictional Restraints of Trade and Dominance Q&As visit www.practicallaw.com/restraintsoftrade-mjg.

For a full list of jurisdictional Cartel Leniency Q&As, which provide a succinct overview of leniency and immunity, the applicable procedure and the regulatory authorities in multiple jurisdictions, visit www.practicallaw.com/leniency-mjg.

Robert E Kwinter, Evangelia L Kriaris and Kevin H MacDonald, Blake, Cassels & Graydon LLP
Contents

Regulatory framework

1. What (if any) merger control rules apply to mergers and acquisitions in your jurisdiction? What is the regulatory authority?

Regulatory framework

The Canadian Competition Act (Competition Act, R.S.C. 1985 c. C-34) sets out the regulatory framework for mergers (as defined in section 91). Two parts of the Competition Act apply to mergers and are independently applicable:

  • Part IX sets out the notification provisions for notifiable transactions.

  • Part VIII sets out the substantive merger review provisions.

Even if a transaction is not subject to notification under Part IX because it does not meet the prescribed thresholds, it is still subject to substantive review under Part VIII and subject to challenge by the Commissioner of Competition (see Question 2).

Regulatory authorities

The Commissioner is an independent law enforcement official who is responsible for the administration and enforcement of the Competition Act. The Commissioner is the head of the Canadian Competition Bureau, an independent branch of the federal Department of Industry, which investigates civilly reviewable matters (such as mergers) under the Competition Act.

The Competition Tribunal is a specialised court responsible for adjudicating applications relating to civilly reviewable matters (including mergers) and operates independently of any government department.

See box, The regulatory authorities.

 

Triggering events/thresholds

2. What are the relevant jurisdictional triggering events/thresholds?

Triggering events

All transactions that satisfy the prescribed thresholds, irrespective of form (for example, share or asset acquisition , merger, joint venture, amalgamation), and regardless of whether there is a change of control, are subject to notification and cannot be completed until the parties have complied with Part IX of the Competition Act. Transactions that do not satisfy the relevant thresholds are still subject to substantive review (Part VIII, Competition Act) and can be challenged by the Commissioner of Competition within one year of closing.

Thresholds

Notifications are required under the Competition Act where both the "size of transaction" and the "size of parties" thresholds are met. For 2014, these thresholds are as follows:

  • The size-of-transaction threshold. This is satisfied if the target has assets in Canada, or revenues in or from Canada, generated by assets in Canada, which exceed Can$82 million. The threshold is adjusted annually for inflation and published in the Canada Gazette.

  • The size-of-parties threshold. This is satisfied if the parties to the transaction, including all affiliates, have combined assets in Canada or revenues from sales in, from or into Canada in excess of Can$400 million.

In the case of an acquisition of the equity of a corporation or non-corporate entity, the "size of equity" threshold must be met in addition to the size-of-transaction and size-of-parties thresholds. The notification requirement is triggered by the acquisition of any of the following:

  • More than 20% of the voting shares of a public company (or, if the acquirer already owns more than 20%, more than 50%).

  • More than 35% of the voting shares of a private company or more than 35% of the interests in a non-corporate entity (or, if the acquirer already owns more than 35%, more than 50%).

 

Notification

3. What are the notification requirements for mergers?

Mandatory or voluntary

All transactions that exceed the relevant thresholds (see Question 2) are subject to mandatory notification unless the parties have received an advance ruling certificate (ARC) or a waiver exempting them from compliance with the notification provisions. An ARC is issued where the Commissioner of Competition is satisfied that there are not sufficient grounds to challenge the transaction before the Competition Tribunal. The issuance of an ARC is discretionary. In practice, it is only issued in non-complex transactions that do not raise any competition law concerns.

Timing

A notifiable transaction cannot be completed until the expiry of the applicable statutory waiting period. While the Competition Act does not prescribe a time for filing the notification, the notification should be submitted to allow sufficient time for the applicable statutory waiting period to expire prior to closing. Where parties submit notifications prior to the transaction becoming public, and request that the Commissioner refrain from making market contacts until the transaction is made public, the Commissioner takes the position that the waiting period will not commence until such time as the parties notify the Commissioner that he can begin making market contacts.

Formal/informal guidance

The parties can approach the Competition Bureau prior to filing notifications, to engage in informal discussions and seek initial guidance. However, in practice, the Bureau does not provide any guidance until the parties have either submitted a request for an ARC or filed notifications.

Responsibility for notification

Both parties to the transaction must file complete notifications to commence the statutory waiting period. In a share transaction, the "parties" are defined as the acquiring party and the corporation whose shares are to be acquired.

There is one exception: in the case of a hostile takeover, the waiting period begins to run from the date the proposed acquirer files its notification rather than the date on which both parties file complete notifications.

Relevant authority

Notifiable transactions must be notified to the Commissioner.

Form of notification

The regulations to the Competition Act set out the information that must be included with the notification (Notifiable Transactions Regulations, SOR/87-348, available at http://laws-lois.justice.gc.ca/eng/regulations/SOR-87-348/index.html).

The notification must include:

  • Information relating to the nature of the parties' businesses and affiliates.

  • Principal suppliers and customers of the parties and their affiliates.

  • General financial information.

The parties must also submit all documents evaluating the proposed transaction with respect to competitive factors as well as the transaction agreement(s).

In practice, the parties submit notifications with a written submission requesting that the Commissioner issue an ARC or a "no-action" letter in respect of the transaction. A no-action letter confirms that the Commissioner has no present intention to commence an application to challenge the transaction before the Tribunal. This submission generally includes all of the following:

  • A description of the parties.

  • A description of the parties' Canadian operations.

  • The relevant product and geographic markets.

  • The competitive effects of the transaction in Canada.

  • Other information to assist the Bureau in conducting its review.

Filing fee

There is a Can$50,000 filing fee for notifiable transactions. Responsibility for payment of the filing fee is a matter for negotiation between the parties.

Obligation to suspend

A notifiable transaction cannot close until the parties to the transaction have received an ARC from the Commissioner or have filed notifications with the Bureau and waited until the applicable waiting period has expired, been waived, or been terminated.

 

Procedure and timetable

4. What are the applicable procedures and timetable?

The receipt of completed notifications from both parties to a transaction commences an initial 30-day waiting period. Within this period, the Competition Bureau may issue a supplementary information request (SIR) if it decides that further information is required to complete its review. The information requested by the Bureau can be quite broad (for example, any additional information that is relevant to the Commissioner of Competition's assessment of the proposed transaction). The issuance of a SIR to one or more of the notifying parties triggers a second 30-day waiting period, which commences when the Commissioner has received both parties' compliance with the SIR. A proposed transaction cannot close until the expiry of this second waiting period (subject to certain exceptions). The statutory waiting period is separate from the duration of the Commissioner's review. The Commissioner has up to one year from closing to challenge a merger.

The waiting period can be terminated earlier if the Commissioner issues an advance ruling certificate (ARC) or notifies the parties he does not intend, at that time, to make an application to the Competition Tribunal under the substantive merger provisions. A request for an ARC, however, does not start the waiting period (so, where timing is important, parties will file notifications to start the statutory waiting period). Where issued, an ARC is generally granted within the initial 30-day waiting period.

The waiting period can be extended if the parties have agreed with the Commissioner to defer closing or if the Commissioner is granted an order from the Tribunal to delay closing.

For an overview of the notification process, see flowchart, Merger notification flowchart: Canada (www.practicallaw.com/1-572-7868).

 

Publicity and confidentiality

5. How much information is made publicly available concerning merger inquiries? Is any information made automatically confidential and is confidentiality available on request?

Publicity

Information provided to the Competition Bureau must be treated confidentially, subject to certain exceptions where the Bureau has the discretion to communicate information (section 29, Competition Act):

  • To a Canadian law enforcement agency.

  • For the purpose of the administration or enforcement of the Competition Act.

  • That has been made public.

  • With the authority of the person who provided the information.

It is the general policy of the Bureau to minimise the extent to which confidential information is communicated to third parties (Information Bulletin on the Communication of Confidential Information Under the Competition Act (Confidentiality Bulletin) available online at www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/info-bulletin-confidential-info-e.pdf/$FILE/info-bulletin-confidential-info-e.pdf). The Bureau does not publish the fact that a notification has been made and does not usually comment on transactions that it is reviewing unless the parties have consented to disclosure or the information has otherwise become public.

Procedural stage

Once the Bureau has completed its review and reached a decision, it provides limited information to the public by posting information to an online merger registry and, less frequently, by publishing a position statement.

Online merger registry. In February 2012, the Bureau began publishing the results of its reviews to an online merger registry. The registry includes the following information:

  • The parties to the transaction.

  • The relevant industry.

  • The outcome of the review, that is, whether the Bureau issued either an ARC or a no-action letter, or whether the transaction resulted in the execution of a consent agreement or a judicial decision.

The merger registry lists all transactions where the parties have requested either an ARC or a no-action letter (both notifiable and non-notifiable), or have filed notifications.

Position statement. In addition to the merger registry, the Bureau occasionally publishes position statements following the completion of its review of certain mergers, summarising its review and main findings. Position statements are typically issued where:

  • The transaction is high-profile.

  • The Bureau's review involves complex or important issues.

  • The Bureau employs novel analytical tools.

Position statements reflect an effort by the Bureau to provide transparency to industry stakeholders and the anti-trust community.

The Bureau can share information it has learned with foreign anti-trust agencies (for example, in multi-jurisdictional mergers). In addition, where the Commissioner challenges a merger, information obtained by the Bureau may be used in its application before the Competition Tribunal.

Automatic confidentiality

All information provided to the Bureau in the context of its review of a transaction is confidential, subject to certain exceptions (see above, Publicity).

Confidentiality on request

See above, Automatic confidentiality.

 

Rights of third parties

6. What rights (if any) do third parties have to make representations, access documents or be heard during the course of an investigation?

Representations

Third parties can make representations to the Competition Bureau regarding a proposed transaction (irrespective of whether the transaction is notifiable).

Document access

Third parties do not have an automatic right to access documents provided to the Bureau in the context of its review of a transaction. However, they can seek a court order to obtain disclosure.

Be heard

During its review of a proposed merger the Bureau will contact third parties (for example, customers and suppliers of the merging parties, competitors and other stakeholders) to elicit their views on the transaction. Parties not contacted by the Bureau can contact the Bureau on their own and provide their views. While third parties do not have the right to challenge a proposed merger, they can complain to the Bureau about a proposed merger, which may result in the Bureau examining the merger more closely.

 

Substantive test

7. What is the substantive test?

The substantive statutory test applied to all mergers (whether notifiable or not), is whether the merger is likely to prevent or lessen competition substantially (SPLC) in a relevant market.

 
8. What, if any, arguments can be used to counter competition issues (efficiencies, customer benefits)?

There is an express efficiency defence to anti-competitive 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 (section 96, Competition Act).

 
9. Is it possible for the merging parties to raise a failing firm defence?

Yes. One of the factors to be considered in determining whether a merger is likely to result in a SPLC is "whether the business, or a part of the business, of a party to the merger or proposed merger has failed or is likely to fail" (section 93, Competition Act). In the case of a failing firm, the loss of its actual or future competitive influence will not be attributed to the merger. The Bureau considers a firm to be failing if:

  • It is insolvent or is likely to become insolvent.

  • It has initiated or is likely to initiate voluntary bankruptcy proceedings.

  • It has been, or is likely to be, petitioned into bankruptcy or receivership.

In making its determination, the Bureau will consider several factors (for example, financial statements, projected cash flows, calling of loans, trade credit and so on).

 

Remedies, penalties and appeal

110. What remedies (commitments or undertakings) can be imposed as conditions of clearance to address competition concerns? At what stage of the procedure can they be offered and accepted?

Where the Commissioner of Competition decides that a proposed merger is likely to prevent or lessen competition substantially (SPLC), the Commissioner can either:

  • Apply to the Competition Tribunal to challenge the merger under section 92 of the Competition Act.

  • Negotiate an appropriate remedy with the merging parties to resolve the competition concerns (typically by registering a consent agreement under section 105 of the Competition Act).

  • Elect not to bring an application at that time, but notify the parties that the:

    • Competition Bureau will continue to monitor the market; and

    • Commissioner could exercise his statutory right to challenge the merger within one year of its completion.

As a matter of practice, the Commissioner will first seek to negotiate a remedy with the parties (via a consent agreement) before resorting to litigation. However, if a resolution cannot be reached, the Commissioner can apply (either before or up to one year following completion) to the Tribunal seeking an order that:

  • In the case of completed mergers, it:

    • dissolves the merger;

    • disposes of assets or shares; or

    • takes any other action with the consent of the person against whom the order is directed (in addition to or in lieu of the above).

  • In the case of proposed mergers, it prohibits the completion of a whole or part of the merger in addition to or in lieu of :

    • prohibitions being imposed as to whether the merger be completed in whole or in part, to ensure there is no SPLC; or;

    • taking any other action with the consent of the person against whom the order is directed.

Only the Commissioner has the statutory right to challenge a merger before the Tribunal, third parties do not (see Question 6).

Remedies can be offered at any stage of the procedure, including "fix-it first" remedies (which can be offered at the time that notifications are submitted).

Where remedies are required, the guiding principle in determining an appropriate remedy is that it should "restore competition to the point at which it can no longer be said to be substantially less than it was before the merger" (Canada (Director of Investigation and Research) v Southam Inc., [1997] 1 S.C.R. 748).

The Bureau's policy documents state a preference for structural remedies, such as divestitures, over behavioural remedies (Information Bulletin on Merger Remedies, 22 September, 2006: www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/vwapj/Mergers_Remedies_PDF_EN1.pdf/$FILE/Mergers_Remedies_PDF_EN1.pdf):

  • Structural remedies are considered to be:

    • more clear and certain;

    • less costly to administer; and

    • readily enforceable.

  • Behavioural remedies are viewed as inadequate due to, among other things:

    • difficulty in monitoring the remedy;

    • determining the appropriate duration for the remedy;

    • associated costs.

The Bureau has, however, accepted stand-alone behavioural remedies in some matters, such as in the Commissioner of Competition v The Coca-Cola Company, September 27 2010 available at: www.ct-tc.gc.ca/CMFiles/CT-2010-009_Registered%20Consent%20Agreement_2_45_9-27-2010_5925.pdf.

Where behavioural remedies are granted, the Tribunal order (whether issued on consent or in a contested hearing), will include a reporting obligation requiring regular reports to the Commissioner to ensure compliance.

 
11. What are the penalties for failing to comply with the merger control rules?

Failure to notify correctly

Failure to file a notification "without good and sufficient cause" is a criminal offence, punishable by a maximum fine of Can$50,000.

Where the party that fails to notify the transaction is a corporation, its officers, directors or agents can also be liable, in certain circumstances.

Individuals are liable to the same punishment as the corporation whether or not the corporation has been prosecuted or convicted.

Implementation before approval or after prohibition

Where the parties close a transaction prior to the expiry of the waiting period, the Commissioner of Competition can apply to the court for a range of remedies, including fines of up to Can$10,000 per day for each day that the parties have closed prior to the expiry of the applicable waiting period.

Failure to observe

Breach of an order of the Competition Tribunal or registered consent agreement is a criminal offence subject to either:

  • On summary conviction, a fine of up to Can$25,000 and/or imprisonment for up to one year.

  • On conviction on indictment, a fine at the court’s discretion and/or imprisonment for up to five years.

 
12. Is there a right of appeal against the regulator's decision and what is the applicable procedure? Are rights of appeal available to third parties or only the parties to the decision?

Rights of appeal

If the Commissioner of Competition challenges a transaction before the Competition Tribunal, the Tribunal's decision can be appealed to the Federal Court of Appeal, as of right, as regards questions of fact (and with leave, questions of law). Decisions of the Federal Court of Appeal can be appealed to the Supreme Court of Canada with leave.

Third party rights of appeal

There are no third party rights of appeal. Only the parties to the decision have a right of appeal (see Questions 6 and 10).

 

Automatic clearance of restrictive provisions

13. If a merger is cleared, are any restrictive provisions in the agreements automatically cleared? If they are not automatically cleared, how are they regulated?

A decision by the Commissioner of Competition not to challenge a merger does not automatically clear restrictive provisions in transaction agreements. While restrictive provisions may not raise competitive concerns at the time of merger review, changes in the market can make the provisions problematic in the future. As a result, these may be subject to review at a future time.

 

Regulation of specific industries

14. What industries (if any) are specifically regulated?

The Competition Act is an act of general application. However, mergers in certain industries are subject to review under sector specific legislation in addition to, or in lieu of, review under the Competition Act. For example, mergers:

  • Between transportation undertakings such as airlines and railways require approval under the Canada Transportation Act.

  • In the broadcasting industry are reviewed by the Canadian Radio-Television Communications Commission under the Broadcasting Act.

  • Between financial institutions may be reviewed under various statutes, including the:

    • Bank Act;

    • Insurance Companies Act;

    • Co-operative Credit Associations Act; or

    • Trust and Loan Companies Act.

 

Joint ventures

15. How are joint ventures analysed under competition law?

Joint ventures can be analysed under the merger provisions or section 90.1 of the Competition Act (see Question 1).

 

Proposals for reform

16. Are there any proposals for reform concerning merger control?

Significant amendments were made to the Competition Act in 2009. The authors are not aware of any current proposals for reform.

 

Online resources

Competition Bureau

W www.competitionbureau.gc.ca

Description. Website of the Competition Bureau, which includes Bureau guidelines, information bulletins, position statements relating to completed mergers and other background information.

Competition Tribunal

W www.ct-tc.gc.ca

Description. Website of the Competition Tribunal, which includes publicly available materials filed with the Tribunal such as applications, motions, background materials and orders of the Tribunal, including consent agreements.

Department of Justice

W laws-lois.justice.gc.ca (www.practicallaw.com/2-106-4146)

Description. An online source of the consolidated Acts and regulations of Canada maintained by the Federal Department of Justice. Information on the website is generally updated on a weekly basis.

Canadian Legal Information Institute

W www.canlii.org

Description. A free public database providing access to Canadian legislation and decisions of Canadian courts and tribunals.



The regulatory authorities

Competition Bureau

Head. John Pecman, Commissioner of Competition

Contact details. 50 Victoria Street
Gatineau, Québec
K1A 0C9, Canada
T +1 800 348 5358 or +1 819 997 4282
F +1 819 997 0324
W www.competitionbureau.gc.ca

Outline structure. The Bureau is headed by the Commissioner of Competition. In addition to the Commissioner, there are nine deputy commissioners responsible for the following branches:

  • Civil Matters.

  • Compliance and Operations.

  • Economic Policy and Enforcement.

  • Public Affairs.

  • Legislative and International Affairs.

  • Mergers.

  • Criminal Matters.

  • Commissioner's Office.

  • Fair Business Practices.

Legal support is provided to the Bureau by:

  • Competition Bureau Legal Services (Department of Justice). Responsible for providing legal services to the Commissioner and for representing the Commissioner on all matters other than those for which the Public Prosecution Service of Canada is responsible.

  • Competition Law Section of the Public Prosecution Service of Canada (PPSC). Responsible for initiating and conducting criminal prosecutions on behalf of the Attorney General of Canada and for advising the Bureau on criminal investigations.

Responsibilities. The Bureau is responsible for the administration and enforcement of the:

  • Competition Act.

  • Consumer Packaging and Labelling Act.

  • Textile Labelling Act.

  • Precious Metals Marking Act.

Procedure for obtaining documents. Bureau materials including guidelines, bulletins and press releases are publicly available on the Bureau's website.

Competition Tribunal

Chairman. Mr Justice Donald J Rennie of the Federal Court

Contact details. Thomas D'Arcy McGee Building
90 Sparks Street, Suite 600
Ottawa, ONK1P 5B4, Canada
T +1 613 957 3172
F +1 613 957 3170
E tribunal@ct-tc.gc.ca
W www.ct-tc.gc.ca

Outline structure. The Tribunal is composed of up to six judicial members appointed from among the judges of the Federal Court and not more than eight lay members. The Governor in Council appoints judicial members from the Federal Court on the recommendation of the Minister of Justice. Lay members are appointed by the Governor in Council on the recommendation of the Minister of Industry. They provide expertise based on their individual backgrounds in economics, business, accounting, marketing and other relevant fields.

The members are appointed for fixed terms of up to seven years and may be re-appointed. One of the judicial members is appointed Chairman of the Tribunal by the Governor in Council.

Responsibilities. The Tribunal has jurisdiction to hear and dispose of all applications made under parts VII.1 and VIII of the Competition Act and any related matters. It also hears references filed pursuant to section 124.2 of the Competition Act.

Procedure for obtaining documents. Most documents are freely available on the Tribunal's website at www.ct-tc.gc.ca. Paper copies of documents may be obtained by contacting the Registry (T +1 613 957 3172).



Contributor profiles

Robert E Kwinter

Blake, Cassels & Graydon LLP

T +1 416 863 3283
F +1 416 863 2653
E robert.kwinter@blakes.com
W www.blakes.com

Professional qualifications. Admitted to the Ontario Bar, Barrister and Solicitor

Areas of practice. Competition and anti-trust; competition litigation; class actions; foreign investment.

Evangelia L Kriaris

Blake, Cassels & Graydon LLP

T +1 416 863 3891
F +1 416 863 2653
E litsa.kriaris@blakes.com
W www.blakes.com

Professional qualifications. Admitted to the Ontario Bar, Barrister and Solicitor

Areas of practice. Competition and anti-trust; competition litigation; class actions; foreign investment.

Kevin H MacDonald

Blake, Cassels & Graydon LLP

T +1 416 863 4023
F +1 416 863 2653
E kevin.macdonald@blakes.com
W www.blakes.com

Professional qualifications. Admitted to the Ontario Bar, Barrister and Solicitor

Areas of practice. Competition and anti-trust; competition litigation; foreign investment.


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