Merger review under the Competition Act (the “Act”) is undergoing significant change. As discussed in our previous blog post, the Federal Government has proposed significant amendments to the Act. These amendments, which are included in Bill C-56 and Bill C-59 (together, the “Bills”) and touch on virtually all facets of competition policy in Canada, represent “generational changes” that, according to the Government’s 2023 Fall Economic Statement, are intended to “help bring Canada into alignment with international best practices to ensure that our marketplaces promote fairness, affordability, and innovation”.
This blog post identifies the key amendments to the merger review process, which can be grouped into changes related to substantive merger review and changes related to pre-merger notification. These changes have important implications for businesses considering future mergers and acquisitions involving Canada.
Substantive Merger Review
The Bills include numerous amendments to the substantive merger provisions in the Act, many of which add new factors to the merger review process, alter the weight that the Competition Bureau (the “Bureau”) currently applies to existing factors or extend the time period within with the Bureau can review completed mergers. For example, the amendments (1) make it clear that impacts on the competitiveness of labour markets will be considered when evaluating mergers; (2) repeal the prohibition on finding that mergers are likely to result in a substantial prevention or lessening or competition solely on the basis of evidence of concentration or market share; (3) increase the range of factors considered when evaluating mergers to include changes in concentration and market share and the likelihood of express or tacit coordination in a market; (4) repeal the efficiencies defence; and (5) increase the limitation period for non-notified mergers from one-year to three years. Ultimately, these changes could potentially result in more mergers being closely scrutinized by the Bureau – including non-notified mergers in emerging or rapidly evolving industries.
Several of the changes identified above will likely also make it easier for the Commissioner of Competition (the “Commissioner”) to successfully challenge a merger before the Competition Tribunal (“Tribunal”).
Additionally, the Act currently includes provisions that allow the Commissioner to apply to the Tribunal for interim orders preventing merging parties from, among other things, taking any steps to close a proposed merger. However, there is currently nothing in these provisions that prevents merging parties from taking steps to close their transactions pending the hearing of these applications. Bill C-59 changes this, as it creates an automatic interim injunction, which remains in effect until such time as the Tribunal has disposed of the Commissioner’s application for an interim order.
Ultimately, the changes to the substantive merger review provisions could make it easier for the Commissioner to successfully challenge mergers before the Tribunal, which, in turn, may mean that more transactions are subject to merger remedies. At a minimum, it seems likely that an increased number of mergers will be subject to automatic interim injunctions.
These changes have many implications for businesses, including the following:
- Competitive Risk Assessment: Merging parties will need to consider a wider range of factors when evaluating the competition-related risks of a proposed transaction, including whether the merger will (1) impact competition for labour (e.g., whether the merged entity will have the ability to reduce or otherwise impact wages, salaries or other terms and conditions of employment) or (2) increase the likelihood of express or tacit coordination. In many cases, this will require the merging parties to work with experienced competition law counsel and, in some cases, economic, financial, labour and/or industry experts.
- Repeal of Efficiencies Defence: Many mergers result in significant efficiencies, including dynamic efficiencies (which are associated with the development of new products and techniques) and production efficiencies (which include reduced per unit operating and fixed costs arising from economies of scale and scope). While efficiencies will likely be considered as a factor in the merger review process, businesses must be cognizant that efficiencies will no longer be sufficient to save a merger that would otherwise be found to be harmful to competition.
- To Notify or Not to Notify: Parties to non-notifiable transactions will need to consider the pros and cons of making a competition filing in advance of closing, particularly when they are involved in rapidly changing industries. Notifying the Bureau of such mergers would reduce the period during which the Commissioner can challenge a transaction from three years to one year, which, in turn, could potentially help minimize the risk of future challenge as result of changing market dynamics.
- Automatic Interim Injunctions: The addition of automatic interim injunctions will impact merging parties’ ability to close potentially problematic transactions prior to the Bureau completing its review and may result in increased use of timing agreements. Given that it takes time for the Tribunal to hear and dispose of applications for interim orders, merging parties will also need to carefully consider the regulatory language and outside dates included in their transaction agreements.
Pre-Merger Notification Regime
Bill C-59 includes several amendments to the pre-merger notification regime, which significantly expand the scope of the pre-merger notification provisions and increase the penalties for non-compliance. For example, the amendments (1) revise the “transaction size” threshold to include assets in Canada or sales in, from or into Canada generated from all assets being acquired, regardless of whether the assets are located in Canada or outside Canada; (2) require that asset and sales amounts be aggregated across various components of a transaction for the purpose of determining whether the “transaction size” threshold is exceeded; and (3) introduce civil penalties for parties that fail to make required pre-merger notification filings (e.g., in the case of a completed transaction, administrative monetary penalties in an amount not exceeding $10,000 for each day on which they have failed to comply with the pre-merger notification provisions).
These changes have many implications for businesses, including the following:
- More Notifiable Transactions: The changes to the manner in which the “transaction size” threshold is calculated will almost certainly result in more transactions being subject to pre-merger notification in Canada. For example, a merger of two foreign companies with de minimis assets in Canada would potentially be subject to pre-merger notification in Canada if the target has sufficient sales into Canada and an operating business in Canada. Ultimately, this could, among other things, impact the regulatory language and outside date included in transaction agreements. Further, in multijurisdictional transactions, more consideration of Canada will be warranted.
- Civil Penalties: Merging parties will need to carefully consider whether a proposed transaction is subject to pre-merger notification. In many cases, this is a relatively simple exercise involving a review of the merging parties’ financial statements. However, in some cases, transactions may raise complex and/or novel notification issues. In such cases, merging parties (through their counsel) may want to seek advice and guidance from the Bureau’s Merger Intelligence and Notification Unit – something that can often be done on a no-names basis.
The Fasken Team will continue to keep you posted on developments regarding amendments to the Act.
If you have questions about the ongoing Competition Act amendment process, you can reach out to any member of Fasken’s Competition, Marketing & Foreign Investment group. Our group has significant experience advising clients on all aspects of Canadian competition law.
The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Competition, Marketing & Foreign Investment group.