The principal Canadian competition law theme in 2013, as with the year before, was enforcement. Criminal enforcement in the areas of price-fixing, bid-rigging and misleading advertising continued with new guilty pleas against various companies and individuals (e.g. auto parts, air cargo, chocolate, real estate advisory services contracts, gasoline and retail multiple telemarketing schemes). The Competition Tribunal (the “Tribunal”) released two decisions involving the Toronto Real Estate Board (“TREB”) and VISA and MasterCard that provided significant interpretations of the scope of the abuse of dominance and price maintenance provisions of the Competition Act (the “Act”). The Superior Court of Ontario also released its decision dismissing, in part, the Competition Bureau’s (the “Bureau”) misleading advertising charge against Rogers and Chat-r with respect to the claim of “fewest dropped calls”. Finally, the Supreme Court of Canada granted leave to appeal in Tervita Corporation v Commission of Competition. Five months earlier, the Federal Court of Appeal (“FCA”) upheld the order of the Tribunal requiring Tervita Corporation to divest the Babkirk hazardous waste landfill site in northern British Columbia that it obtained through its acquisition of Complete Environmental Inc.
With respect to private litigation, the Supreme Court of Canada released a trilogy of long awaited decisions in proposed class proceedings brought by indirect purchasers of products alleging competition law violations. The Supreme Court concluded, among other things, that indirect purchasers have a cause of action, resolving a conflict in appellate jurisprudence in Canada. The Supreme Court’s decisions are expected to have a profound impact upon cartel-related class actions in Canada.
2013 also saw John Pecman appointed as Commissioner of Competition on June 12, 2013 for a five-year term. Prior to his appointment as Commissioner, Mr. Pecman held the position of Interim Commissioner from September 2012 to June 2013.
Our Bulletin reports on these and other developments.
Enforcement Policy: Administration of the Competition Act
(a) Change in Senior Management
After 16 months with the Bureau, Kelley McKinnon resigned from her position as Senior Deputy Commissioner, Merger Branch in December 2013. Ann Wallwork, who has been at the Merger Branch for many years, assumed the duties of the position on an interim basis until a permanent replacement is found.
(b) More Position Statements
Position statements are published by the Bureau to provide transparency to the antitrust community and industry stakeholders. They describe the Bureau’s analysis of a particular proposed merger and summarize its main findings. The Bureau published 13 position statements in 2013 – more than the number of position statements published in 2011 and 2012 combined. This is congruent with the new Commissioner of Competition, John Pecman’s emphasis on transparency and the Bureau’s launch of its Action Plan on Transparency in May 2013.
(c) New Filing Thresholds
Pre-merger notification under the Act is required where both size-of-parties and size-of-transaction thresholds are exceeded. The size-of-parties threshold is exceeded where the parties, including their respective affiliates, together have assets in Canada or gross revenues from sales in, from or into Canada that exceed $400 million. That threshold remains unchanged for 2014.
The size-of-transaction threshold increased to $82 million (up from $80 million), effective January 25, 2014.
(d) New Approach to Upstream Oil and Gas Mergers
During the Annual Mergers Roundtable in May 2013, the Bureau responded to concerns of industry and the bar relating to the amount of information required for upstream oil and gas merger reviews, by no longer requesting detailed information (such as third party contact information) regarding ownership interests in upstream field facilities like batteries and compressors. Mergers involving gas plans are still subject to the previous level of information requirement.
(e) State-Owned Enterprises (“SOEs”)
The Bureau confirmed during the Annual Mergers Roundtable that a foreign government is not a “person” for the purposes of pre-merger notification, thus SOEs under different lines of control of the same foreign government are not viewed as affiliates when assessing the relevant pre-merger notification thresholds. However, ownership of 10% or more by a foreign government (or its affiliates) of any company which competes with the SOE acquirer need to be disclosed to the Bureau. The Bureau is aware of the difficulty associated with requesting information from foreign governments, but information gathering options must be raised by the parties early in the review process.
(a) The Supreme Court of Canada will hear Tervita Corporation’s Appeal
In July 2013, the Supreme Court of Canada granted leave to appeal in Tervita Corporation v Commission of Competition. Five months earlier, the FCA upheld the order of the the Tribunal requiring Tervita Corporation (formerly known as CCS Corporation) to divest the Babkirk hazardous waste landfill site in northern British Columbia that it obtained through its acquisition of Complete Environmental Inc. The Commissioner had applied to the Tribunal pursuant to section 92 of the Act, which grants jurisdiction to the Tribunal to intervene where “a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially.” The acquisition at issue was below the pre-merger notification thresholds.
This will be second merger case heard by the Supreme Court since the modern merger law framework was implemented. The issues before the Supreme Court will include, among other things, the proper time frame in determining whether a merger results in a substantial prevention of competition and the proper methodology for applying the efficiency defence under the Act. The appeal is scheduled to be heard on March 27, 2014.
(b) Telus’ acquisition of Public Mobile Inc. is cleared with behavioural remedy
In November 2013, the Bureau issued a No Action Letter (“NAL”) clearing TELUS Communications Inc.’s (“Telus”) acquisition of Public Mobile Inc. (“Public Mobile”). The Bureau’s competitive analysis focused on the extent to which there would remain effective non-incumbent competition post-transaction in geographic areas where the parties’ networks coverage overlap, namely Southern Ontario and Greater Montreal. The Bureau reviewed the parties’ and third parties’ strategic documents and business plans, and took into consideration Telus’ commitment to continue certain monthly plan previously offered by Public Mobile. The Bureau concluded that the remaining non-incumbents would likely continue to provide effective post-transaction competition; therefore the proposed transaction was unlikely to substantially lessen or prevent competition in the sale of mobile wireless telecommunications services in Southern Ontario and Greater Montreal. This case is unique in the sense that the Bureau adopted a somewhat informal approach by accepting Telus’ behavioural commitment without a formal consent agreement.
(c) Consent agreement reached in waste disposal services assets acquisition
In February 2013 the Bureau entered into a consent agreement with WM Quebec Inc. (“WMQ”) to address the Bureau’s concerns regarding the acquisition of the assets of RCI Environment Inc. (“RCI”) by WMQ. The Bureau originally determined that the proposed acquisition would result in a substantial lessening or prevention of competition in the supply of permanent solid non-hazardous waste disposal services in western Quebec. Under the consent agreement, WMQ is required to sell the right to dispose of up to 1.875 million tonnes of waste over 20 years at a landfill in Lachute, Quebec. The sale will preserve competition in western Quebec by ensuring that the buyer will have access to sufficient landfill capacity to effectively compete for business in those areas. An independent monitor will be appointed by the Bureau to ensure that WMQ complies with the terms of the consent agreement.
(d) Entertainment One Ltd.’s acquisition of Alliance Films Holdings Inc. is cleared
In January 2013 the Bureau issued a NAL clearing Entertainment One Ltd.’s (“eOne”) acquisition of Alliance Films Holdings Inc. (“Alliance”). eOne and Alliance were significant competitors for the distribution of films in Canada. In particular, the Canadian films distributed by the parties account for the vast majority of the revenues generated by Canadian films. The distribution of Canadian films constitutes a distinct product market as a result of various government cultural initiatives and funding programs. Funding of Canadian film productions largely depends on such government programs, and in order to be eligible a film producer must use a Canadian distributor such as eOne or Alliance, therefore raising competition concerns over the proposed merger.
The Bureau determined that the merged entity would likely be constrained in its ability to implement more restrictive distribution terms due to strict requirements of government funding programs. Also, if the merged entity chose to distribute fewer Canadian films, it would likely create an opening in the market for some smaller distributors. The Bureau concluded that the acquisition was unlikely to result in substantial lessening or prevention of competition for the distribution of Canadian films. Further, the Bureau found that for the distribution of non-Canadian films, a substantial lessening or prevention of competition was unlikely due to effective competition remaining in the market.
(e) LifeLabs BC LP’s acquisition of BC Biomedical Laboratories Ltd. is cleared
In February 2013, the Bureau issued a NAL in respect of the acquisition by LifeLabs BC LP of BC Biomedical Laboratories Ltd. Both companies provide diagnostic services for patients in the BC Lower Mainland through the Medical Services Plan offered by the British Columbia government. The Bureau concluded that the robust regulatory framework governing the fees and provision of diagnostic testing services was sufficient to mitigate the potential for anti-competitive effects arising from the merger under any plausible market definition. In particular, there was little evidence of direct or future competition between the parties, and the BC Regional Health Authorities would be an effective alternative to the merged entity post-transaction.
(f) Leon’s acquisition of The Brick is cleared
In March 2013, the Bureau issued a NAL in respect of the acquisition by Leon’s Furniture Limited (“Leon’s”) of The Brick Ltd. (“The Brick”). The Bureau determined that the parties’ retail operations overlapped in over sixty local markets in Canada, and the parties were particularly close competitors in the retailing of furniture and mattresses. Using the parties’ transaction level sales data, the Bureau conducted cross-sectional economical analysis to quantify the competition between them. The Bureau compared the parties’ prices in areas where they compete with prices in areas where they do not compete, while controlling various relevant economical factors. Together with assessment of other sources of information, the Bureau concluded that the price effects were not material.
The Bureau also considered barriers to entry and noted that scale provides a large retailer with cost advantages over small retailers, which manifest in the establishment of a fully functioning retail network. Finding and accessing viable real estate is another key barrier to entry. However, the Bureau concluded that a number of national and regional retailers had overcome those barriers and there would be sufficient effective competition to the merged entity in each of the local markets identified. Consequently the Bureau determined that the merger was unlike to lead to a substantial lessening or prevention of competition.
(g) Bureau secures remedy in sale of majority of Viterra Inc.’s business to Agrium
In September 2013 the Bureau entered into a consent agreement with Agrium Inc. (“Agrium”) to resolve competition concerns related to Agrium’s acquisition of the majority of Viterra Inc.’s (“Viterra”) retail agri-products business from Glencore International plc. Under the consent agreement, Agrium will divest seven retail stores and nine anhydrous ammonia businesses. Since Agrium is the largest manufacturer of urea and anhydrous ammonia in western Canada, it will also supply anhydrous ammonia to any purchaser of the divested assets for up to four years at prices not to exceed those charged to its retail outlets in Alberta and Saskatchewan.
Urea and anhydrous ammonia are functionally substitutable nitrogen fertilizers, but the switching cost between them is high and the physical characteristics are different, therefore the Bureau viewed the retail supply of them as two separate markets. The relevant geographic scope of these markets was determined to be local, within a 35-kilometer radius of a retail store. The parties were close competitors in these markets and a number of barriers to entry existed, such as significant capital expenditures in terms of real estate and equipment, constrained supply, and high level of industry maturity. Nonetheless the Bureau found a number of national, regional and local competitors that could act as effective remaining competition in certain local markets post-transaction. The Bureau believes that the consent agreement resolved its concerns.
(h) Consent agreement involving significant divestitures reached in Sobeys/Safeway deal
In October 2013, the Bureau entered into a consent agreement with Sobeys Inc. (“Sobeys”) to resolve competition concerns related to Sobeys’ acquisition of substantially all of the assets of Canada Safeway (“Safeway”) in western Canada. Under the consent agreement, Sobeys will divest 23 grocery stores in four provinces. Sobeys originally proposed to purchase 213 grocery retail locations from Safeway.
The Bureau’s analysis focused on the parties’ grocery retail and wholesale operations. With respect to grocery retail, the Bureau concluded that the relevant product market was the retail sale of full-line grocery products that allows consumers to satisfy all their grocery needs in a single location, which generally has not less than 10,000 square feet dedicated to grocery products. Though some discount-oriented retailers differentiate themselves from conventional grocery stores like Sobeys and Safeway through pricing, quality/range of product offering, and services levels, the Bureau determined that they still act as effective competitors and should be included in the relevant market, as long as they satisfy the general market definition. The relevant geographic market is local. The Bureau found that effective remaining competition would exist in most local markets post-transaction, but in certain local markets the parties will have significant market share with limited competition. Barriers to entry were found to be high and include difficulty with accessing appropriate real estate locations, obtaining the necessary permits and governmental approvals, and building or converting a suitable retail store.
Consequently the Bureau concluded that the proposed transaction would lead to a substantial lessening or prevention of competition in some of the relevant local product markets, and entered into the consent agreement with Sobeys. The Bureau did not make such a finding with respect to grocery wholesale, because of low levels of direct competition between the parties and presence of effective remaining competition post-transaction.
(i) Bureau relies on international remedy to clear life sciences acquisition
In December 2013, the Bureau issued a NAL clearing Thermo Fisher Scientific Inc.’s (“Thermo Fisher”) acquisition of Life Technologies Corporation. Both companies are in the business of production and supply of life sciences products. A part of the Bureau’s reasoning behind the NAL is a remedy obtained by the European Commission (“EC”), whereby Thermo Fisher has agreed to divest businesses producing and supplying a variety of products used in clinical and research applications in the life sciences sector. It is standard practice for the Bureau to work closely with competition regulators in other jurisdictions when the same transaction is scrutinized. The Bureau affirmed its willingness to take into consideration and rely on remedies agreed upon in other jurisdictions to address its competitive concerns.
Abuse of Dominance and Other Reviewable Practices
2013 featured the release of two decisions by the Competition Tribunal (the Tribunal) involving significant interpretations of the scope of the abuse of dominance and price maintenance provisions of the Competition Act (the Act) respectively.
(a) The Commissioner of Competition v. The Toronto Real Estate Board
In The Commissioner of Competition v. The Toronto Real Estate Board, the Tribunal dismissed an application by the Commissioner for orders prohibiting TREB from engaging in certain practices alleged to limit use by TREB’s members of Multiple Listing Service (MLS) listings and related data on the internet. The Tribunal declined to consider the merits of the application, holding that the requirements in subs. 79(1)(a) (dominance) and 79(1)(b) (practice of anti-competitive acts) could not be satisfied as TREB did not compete with its members in the supply of residential real estate brokerage services (the “Market”). On appeal, the Federal Court of Appeal held that the Tribunal erred in concluding that 79(1)(a) and (b) could not be satisfied because TREB did not compete in the Market and referred the application back to the Tribunal for reconsideration on the merits.
(b) The Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated
The Tribunal dismissed the Commissioner’s application in The Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated seeking an order under section 76 of the Act (price maintenance) prohibiting Visa and MasterCard from implementing or enforcing certain rules including a rule prohibiting merchants from applying a surcharge to customers who pay with credit cards. The Tribunal held that resale of a product to a customer is a requirement of section 76 and had not been established in the case. In case this conclusion was not correct, the Tribunal also assessed the remaining elements of section 76 and determined that although these elements were satisfied, the order sought would not be appropriate as regulation rather than the blunt remedies available under the Act would be necessary to effectively address the competition concerns. The Commissioner did not appeal the decision.
(c) Ongoing Abuse of Dominance Cases
National Energy Corporation was granted intervener status in two other ongoing abuse of dominance cases – The Commissioner of Competition v. Reliance Comfort Limited Partnership and The Commissioner of Competition v. Direct Energy Marketing Limited – and a motion by Reliance to strike the Commissioner’s application on the grounds that it disclosed no reasonable cause of action was dismissed by the Tribunal and on appeal. The Tribunal hearing on the merits of these applications is scheduled to begin in January, 2015.
(d) Interac Consent Order
The Tribunal approved an application brought on consent to amend the terms of “Interac Consent Order”. Amongst other matters, the revised consent order permits Interac to restructure its operations into a single corporate entity with a single independent board of directors, and to include in its cost recovery fee a capped component for research and development activities and for debt servicing costs. Behavioural restrictions, terms relating to access, and the requirement to derive all material revenues from switch fees remain in place.
(e) Leave Applications
In Safa Enterprises Inc. v. Imperial Tobacco Company Limited, the Tribunal dismissed a request for leave to bring an application under the price maintenance provision as the applicant had failed to plead any facts that would establish that Imperial had discriminated against Safa due to Safa’s low pricing policy. The test applied for obtaining leave – that an applicant seeking leave to bring proceedings under section 76 must demonstrate that there is sufficient credible evidence to give rise to a bona fide belief that the applicant may have been directly affected by the conduct and that the conduct could be the subject of an order – is very similar to the test previously established in respect of applications for leave to commence proceedings under the refusal to deal and exclusive dealing, tied selling and market restriction provisions of the Act.
(f) E-Books Consent Order
On February 7, 2014, the Commissioner announced that he had filed with the Tribunal a registered consent agreement to address conduct by e-book publishers alleged to be contrary to section 90.1 of the Act (the civil anti-competitive agreements provision). The Consent Agreement limits the ability of the four signatory e-book publishers to restrict retail prices and discounts offered by e-book retailers for a period of 18 months and to include MFN clauses in agreements with e-book retailers for a period of 4.5 years. Kobo has filed a notice of application seeking rescission or variation of the consent agreement on grounds that by prohibiting the kinds of agency agreements it has with the e-publishers, the consent agreement directly and seriously harms Kobo and is based on terms that could not have been the subject of an order under section 90.1.
Cartels and Other Criminal Prohibitions
Cartels, bid-rigging and deceptive telemarketing schemes all featured prominently in the criminal enforcement efforts of the Bureau in 2013. A number of convictions obtained through guilty pleas, as described below. The Bureau also issued a revised set of FAQs for the Leniency and Immunity Programs in addition to launching a whistleblower program.
(a) Price Fixing
- Cathay Pacific Airways Limited (“Cathay Pacific”) was the eighth party to receive a fine in an air cargo price-fixing cartel matter reaching back to 2009. Cathay Pacific received a fine of $1.5 million.
- Latam Airlines Group S.A. (“LATAM”), a South American air cargo corporation, was also fined $975,000 after pleading guilty to participating in the air cargo price-fixing cartel. LATAM was the ninth party convicted in the investigation, which has resulted in over $25 million in fines.
- The ongoing investigation into the price fixing in the retail gasoline industry in Quebec saw several developments. Les Pétroles Global Inc. was found guilty and was the seventh company to plead or be found guilty. As well, three individuals were found guilty and sentenced to pay fines totalling $45,000. Two other individuals pled guilty and were sentenced to pay fines totalling $8000. To date, 15 companies and 39 individuals have been charged for conspiring to fix the price of retail gasoline. 7 of the companies and 33 of the individuals have pleaded or were found guilty as a result of the investigation, with over $3 million in fines being administered.
- Hershey Canada Inc. was fined $4 million after pleading guilty to price-fixing with respect to chocolate confectionery products. Charges have also been laid against other manufacturers of chocolate products and senior executives of those companies.
- A criminal charge was laid against Louis Facchini, an individual who was found guilty in 2012 of bid-rigging federal government contracts in real estate advisory services. As part of the same investigation, Corporate Research Group Ltd. also pled guilty and was fined $125,000.
- The Canadian affiliate of a UK bank abandoned its challenge to a Section 11 Competition Act order issued by the Ontario Superior Court of Justice to produce certain records to the Competition Bureau in connection with an investigation into alleged collusive conduct in the setting of Yen LIBOR rates and pricing Interest Rate Derivative products. On January 3, 2014, the Competition Bureau announced that it has discontinued its investigation of the alleged conduct.
(b) Bid Rigging Cases
- Furukawa Electric., Ltd. (“Furukawa”) was fined $5 million for conspiring with other Japanese manufacturers in the tendering and bidding process of supplying parts to an automobile manufacturer.
- Yazaki Corporation (“Yazaki”) was fined $30 million, which represented a record fine for bid-rigging in Canada. The conspiracy was in connection with the tendering and bidding process for supplying parts to automobile manufacturers.
- JTEKT Corporation (“JTEKT”) was fined $5 million in connection with the tendering and bidding process for supplying bearings to an automobile manufacturer.
(c) Misleading Advertising – Criminal
- Two individuals were sentenced in connection with telemarketing schemes that were part of the Bureau “Operation Mirage” investigation, which led to action against 50 organizations. One individual connected to the organization “GOAM Media” was prohibited from engaging in telemarketing for 10 years. Another individual charged in the investigation pled guilty to making false and misleading representation and received a 12-month conditional sentence, as well as a 10-year prohibition from engaging in telemarketing.
- The Ontario Court of Appeal upheld a $500,000 administrative monetary penalty payable by an individual in connection with a telemarketing business directory scheme in which the companies falsely led businesses to believe they were connected with the Yellow Pages Group. Five companies and three individuals have been collectively fined over $9 million.
- An individual was sentenced to nine months of imprisonment to be served in the community and 12 months of probation in connection with a telemarketing scheme. The individual pled guilty to nine counts of deceptive marketing and two counts of fraud under the Criminal Code after an investigation by the Bureau reaching back to 2006 that had resulted in charges for five individuals in December 2012.
- An individual was found guilty in connection with making materially false or misleading representations on a website purportedly aimed at finding employment in the oil and gas industry. Mr. Hovila had previously been under scrutiny by the Bureau, having signed a consent agreement with respect to the website and paid a $100,000 administrative monetary penalty.
(d) Policy Developments
- The Bureau published revised sets of the Frequently Asked Questions (“FAQs”) for its Immunity and Leniency Programs. The FAQs, together with the Bureau’s Immunity and Leniency bulletins, are designed to provide a comprehensive overview of the Bureau’s approach to immunity and leniency applications. The updates to the FAQs included: (a) who may benefit from leniency markers and when; (b) ongoing obligations surrounding proffered information; (c) how the Bureau determines its fine recommendations; and (d) obligations surrounding disclosure, plea agreements and court proceedings.
- The Bureau launched its Criminal Cartel Whistleblowing Initiative, which is aimed at facilitating the receipt of information from individuals about suspected criminal cartels. The Act already contains provisions that protect the identity of whistleblowers and govern the use of their information. In some circumstances individuals may be required to testify in court.
Class Actions and Other Litigation
On October 31, 2013, the Supreme Court of Canada released a trilogy of long awaited decisions in intended class proceedings brought by “indirect purchasers” of products alleging competition law violations. In Pro-Sys Consultants Ltd v Microsoft Corporation, Sun-Rype Products Ltd v Archer Daniels Midland Company and Infineon Technologies AG v Option consommateurs, the Supreme Court concluded that indirect purchasers have a cause of action. While defendants cannot rely on a “passing-on defence”, the rejection of the passing-on defence does not prevent indirect purchasers from claiming that unlawful overcharges were passed on to them.
The “passing-on defence’ was traditionally invoked under the proposition that if a direct purchaser who sustained the original overcharge passed that overcharge to its own customers, the gain conferred on the overcharger was not at the expense of the direct purchaser because the direct purchaser suffered no loss. Accordingly, the fact that the overcharge was “passed on” was argued as a defence to actions brought by the direct purchaser against the party responsible for the overcharge. As the U.S. Supreme Court did in Hanover Shoe, Inc. v United Shoe Machinery Corp, the Supreme Court of Canada rejected the passing-on defence. The Supreme Court found it inconsistent with restitutionary law and “economically misconceived.”
Unlike the approach adopted by the U.S. Supreme Court in Illinois Brick Co v Illinois, however, the Supreme Court of Canada held that its rejection of the passing-on defence does not lead to a corresponding rejection of the offensive use of passing on. Accordingly, indirect purchasers (that is, customers who did not purchase products directly from the alleged price-fixer but indirectly from a party further down the chain of distribution) are not foreclosed from claiming losses that have been passed on to them.
The most immediate impact of the Supreme Court’s decisions is that a number of cases put on hold pending the release of the Supreme Court’s decisions will now proceed. But additionally, the finding that indirect purchasers have a cause of action, together with an arguably low standard of proof for plaintiffs to meet on certification motions, will likely result in more class action filings.
Marketing and Advertising
(a) Hyundai Auto Canada Corp. (“Hyundai”) and Kia Canada Inc. (“Kia”) reached a consent agreement to remedy advertisements of inaccurate fuel consumption ratings. Among other things, Hyundai and Kia agreed to complete implementing their announced consumer restitution program.
(b) Rogers Communications Inc. (“Rogers”) was successful in dismissing, in large part, the Bureau’s application that focused on misleading advertising claims against Rogers and Chat-r with respect to the claim of “fewest dropped calls.”
(c) The Bureau commenced legal action against Leon’s and The Bricks for their “buy now, pay later” options. The action points to customers who were allegedly required to pay up-front fees, included in the fine print of the “buy now, pay later” advertisements.
Investment Canada Act
Foreign Investment Review – Specific Investments Will Continue to be Targeted
Canada’s foreign investment review regime under the Investment Canada Act (“ICA”) continues to present challenges in relation to a select number of transactions each year. This is expected to continue especially in connection with transactions that involve foreign SOE investors or that raise potential national security issues.
The first formal rejection of a transaction (outside the cultural sector) under the ICA occurred in 2008 in relation to a bid by US-based Alliant Techsystems Inc. to acquire MacDonald Dettwiler Associates Ltd., a Canadian aerospace company. This was followed in 2010 by the preliminary rejection of BHP Billiton’s bid for Potash Corporation of Saskatchewan that resulted in BHP abandoning that transaction. In 2011, the effort by the London Stock Exchange to merge with the TMX, operator of the Toronto Stock Exchange, attracted the government’s attention although the failure of that transaction was not attributable to its intervention in the transaction. 2012 saw the approved acquisitions by CNOOC of Nexen and by Petronas of Progress Energy, both SOE investors, serve as a catalyst for changes to the way SOEs are now treated under the ICA.
Last year, Orascom Telecom withdrew its offer to acquire Wind Mobile, a Canadian cellular business. While the reasons for the decision to withdraw were not publicised, national security concerns may have been raised during the review process under the Act. Also in 2013, the proposed acquisition of Allstream, a division of MTS Telecom Services, by Accelero Capital Holdings Inc., was blocked based on national security concerns and Lenovo reportedly did not proceed with respect to a possible bid for Blackberry because the Canadian government had expressed similar security concerns with Lenovo’s proposed ownership of that communications company.
Transactions involving SOE investors, especially in industry sectors considered sensitive by the Canadian government, will continue to face heightened scrutiny under the ICA as will investments that potentially impact Canada’s national security. However, it should be business as usual under the ICA for most other foreign takeovers of Canadian businesses. Such transactions (other than cultural investments) are generally only subject to the requirement to demonstrate that the investments will have a net economic benefit to Canada – the ICA’s “net benefit to Canada” test. Historically, foreign investors have been able to satisfy this test.
Despite amending the ICA in 2009 to adopt a new enterprise value method of calculating the monetary threshold mandating the review of direct acquisitions of Canadian businesses under the ICA and to substantially increase the amount of that threshold ultimately to $1 billion, the prior asset value calculation method remains in place and will continue until regulations implementing the amendments are enacted. Consequently, most direct acquisitions (other than culturally related transactions and investments by a very limited number of foreign entities that do not qualify for the higher monetary threshold) will not be subjected to review under the ICA if the asset values of the targeted Canadian businesses are below $354 million.
In connection with Canada’s recent announcement of the Comprehensive Economic Trade Agreement with the European Union (EU), it is proposed to further raise the review threshold for EU investors, possibly to as high as $1.5 billion. If this is the case, the threshold for investors from other WTO member states, such as the United States, may also be raised.
It should be noted, however, that despite Canada’s intention to generally raise the monetary threshold for the mandated review of direct acquisitions, SOE investors will still be required to use the existing asset value calculation method and be subject to the much lower threshold used for that calculation.