On April 25, 2013, the Canadian Competition Bureau (the “Bureau”) published two new pre-merger notification interpretation guidelines. Subject to limited exceptions, mergers are pre-notifiable in Canada if specified party-size and transaction-size notification thresholds are satisfied. Pre-merger notification interpretation guidelines issued by the Bureau provide guidance on when filing exemptions may apply, how pre-notification thresholds should be calculated and information requirements for filings.
Guideline No. 12: Requirement to submit a new pre-merger notification or ARC request where a proposed transaction is subsequently amended
The first of the new guidelines provides guidance on when a new per-merger notification or advance ruling certificate (ARC) request must be filed if a proposed transaction is amended after a notification or ARC has been submitted.
The Guideline states that a new notification will be required when the information submitted in the original notification no longer satisfies the statutory requirement that a notification be correct and complete in all material respects. In the case of an ARC request, a new filing will be required if the amendment results in a more in-depth or different competitive effects analysis.
The Guideline also discusses four types of when four types of amendments may trigger a re-filing requirement. The four amendments discussed are: the addition of a new party; the addition of a new asset; the addition of new voting shares or redistribution of voting shares or assets; and, removal of an asset or party.
Addition of a New Party
The addition of a new party will generally require a new notification filing containing prescribed information for the new party unless the new party proposes: to acquire an ownership interest of less than 10%; is an affiliate of an existing party (and, if significant was covered by the initial filing); already controls the target; is a new vendor in a share transaction; or, is a guarantor. As the contents of an ARC request are not prescribed, the Bureau identifies factors it may consider in assessing whether a new filing is required. However, the type factors (namely, the nature of new party and the interest to be acquired) and consideration of them mirrors the approach identified in respect of a notification.
Addition of a New Asset
Where an additional asset does not relate to the operational aspects of the business or is ancillary to other assets that are proposed to be acquired, a new filing will not typically be required. Conversely, where the new asset is operational, a new filing will be required unless the parties clearly demonstrate that it does not create or enhance competitive overlap. In determining whether an asset is operational or ancillary, the Bureau will consider the book value of the asset, individually and in relation to existing assets.
Addition of New Voting Shares or Redistribution of Voting Shares, Assets or Ownership Interests
If the increase in ownership is less than 10% and does not exceed a new notification threshold, then a new filing will not typically be required. Also, if the party already holds more than a 50% voting interest, a new filing will not be required. In all other circumstances, it will be necessary to determine whether the filing is complete and correct in all material respects (in the case of a notification) or whether a more in-depth competitive effects analysis might be required (in the case of an ARC).
Removal of an Asset or Party
Removal of an asset or party will not likely require a new filing, unless it results in an increase in the ownership interest to be acquired by another party which triggers the thresholds discussed above.
Guideline No. 14: Duplication arising from transactions between affiliates
As in many other jurisdictions, in order to be pre-notifiable, a merger must meet both a party-size and transaction-size threshold, based on revenues and/or assets. The second new guideline discusses the treatment of duplication (of assets or revenues) arising from transactions between affiliates in the calculation of revenues and/or assets for purposes of the notification thresholds.
According to the Guideline, deduction for duplication is only permissible if the revenue or asset amount has already been included in the calculation of the party-size or transaction-size amount. This means that the threshold amounts may differ from those shown on consolidated financial statements. The Guidelines state that if the party-size or transaction-size threshold is not met based on the consolidated financial statements of a party a transaction, no further adjustments are required to determine pre-notifiability. This will not be the case, though, when the target of a proposed transaction is a subsidiary of a foreign parent.
The Bureau has yet to finalize guideline number 15 (which it also circulated in draft in 2012), addressing when an asset is “in” Canada or revenues are “in, from or into” Canada for purposes of applying the pre-notification thresholds.
The Bureau has not leapfrogged over Guideline number 13 (for superstitious or other reasons). Guideline 13 was published in 2011 and provides guidance on information to be included in a notification.