Kevin Ackhurst is a partner in the Toronto office of Norton Rose Fulbright where he leads the firm’s Canadian competition practice. He advises Canadian and international clients on all aspects of Canada’s competition and foreign investment laws. His practice involves analysing the competitive implications of mergers and acquisitions, joint ventures and strategic alliances, providing advice concerning civil and criminal competition law matters, developing competition law compliance programmes, and advising on the review of foreign investments under the net benefit and national security provisions of the Investment Canada Act.
Kevin currently chairs the Foreign Investment Review Committee of the Canadian Bar Association’s National Competition Law Section, and in 2012–2013 he chaired the Section’s Mergers Committee.
In both 2017 and 2018, Kevin was designated as an Acritas ‘Star’ lawyer by a panel of over 3,000 global senior in-house counsel.
He recently advised Tervita Corporation on its proposed acquisition of Newalta Corporation; Nuuvera Inc on its acquisition by Aphria Inc; Brookfield Business Partners on its acquisition of the retail gas station business of Loblaw Companies Limited; and Metro Inc in response to dawn raids by the Competition Bureau in its industry–wide investigation into alleged bread price fixing.
GTDT: What have been the key developments in the past year or so in merger control in your jurisdiction?
Kevin Ackhurst: The Competition Bureau, which has a March 31 fiscal year end, saw an increase in the number of mergers reviewed in 2016–2017 compared to 2015–2016, but was still below 2014–2015 levels. That said, there were more complex mergers in 2016–2017 than the year before, and the average duration of a complex merger review was longer than in previous years. In the first half of 2017–2018, the number of transactions classified as complex increased over 2016–2017, with close to one-third of reviewed mergers rated as complex compared to 23 per cent in 2016–2017. For matters classified as non-complex, the Bureau meets its service standard period – which is the maximum amount of time it is meant to take to complete its reviews – in nearly all cases: 99 per cent in both 2016–2017 and 2014–2015. The service standard is 14 days for non-complex mergers.
There is more variance with respect to complex matters being completed within the 45-day service standard period. That target was met in only 74 per cent of cases in 2016–2017, a drop from 85 per cent in 2015–2016 and 91 per cent of cases in 2014–2015. For the first half of 2017–2018, complex merger review durations continue to climb.
In terms of areas of focus, one of the key areas for the Bureau is the relationship between competition and innovation. Innovation was mentioned in practically every speech delivered by the Commissioner of Competition over the past 18 months. The Bureau pays particular attention to digital economy cases, which they define as ‘cases that support innovation and the competitiveness of the digital economy (including but not limited to e‑business, online promotions, sales and transfers, infrastructure support) by deterring anticompetitive conduct such as impeding new entrants, products or services and by stopping deceptive marketing practices online including activities that engage’ Canada’s anti-spam laws. The Bureau noted in a recent performance update that there was an 80 per cent increase in enforcement cases in the digital economy compared to 2015–2016, with 43 cases commenced, 35 cases concluded and 44 digital economy cases ongoing at year end. Most of these cases involved unilateral conduct or abuse of dominance (eg, Google, Apple, Toronto Real Estate Board), although the Bureau’s case against e-book publishers involved agreements among competitors.
In June 2017, the Bureau concluded its review of the proposed merger between Dow and DuPont, clearing it subject to certain divestitures. The Commissioner has highlighted the importance of this case from an innovation point of view, as the agency had concerns that the transaction would have a negative impact on innovation in the agricultural sector. The Bureau determined that the merger would reduce the likelihood of bringing new and more effective herbicide products to market as both parties were active in research and development in that space and the loss of innovation rivalry would reduce the incentive to innovate.
The Bureau is not required to issue reasons for its clearance decisions. As such, there is no counterpart to the European Commission’s 915–page opus on the Dow/DuPont deal beyond a six-page position statement issued by the Bureau, which the Commissioner has noted refers to innovation 17 times.
One of the key developments in the past year has been the willingness of the Bureau to clear transactions that it acknowledges are likely to have an anticompetitive effect. This is because the Competition Act contains an ‘efficiencies defence’ that prohibits a merger from being blocked where the gains in efficiency resulting from the merger will be greater than and offset the effects of any prevention or lessening of competition. In several cases in the past year, the Bureau outright cleared mergers it considered anticompetitive because of the efficiencies defence; in one other that involved a number of local markets, the Bureau only challenged the transaction in those markets where its analysis led it to conclude that the efficiencies did not outweigh the anticompetitive effects.
These cases followed the Supreme Court of Canada’s 2015 Tervita decision that allowed a transaction to proceed based on the efficiencies defence. This was the first antitrust merger case heard by Canada’s highest court in about 20 years, and came about a dozen years after the Federal Court of Appeal had allowed another case to proceed based on the efficiency gains outweighing the anticompetitive effects of the deal. In the intervening period, previous Commissioners of Competition had taken the position that they would not conduct that trade-off analysis, referring any transactions that raised these issues to the Competition Tribunal. What is notable about the most recent efficiency cases, both involving Canexus Corporation, is that the Bureau undertook the analysis (with the assistance of outside experts) and reached a decision to clear the matter without referring the matter to the Tribunal.
Following the Tervita decision, the Commissioner noted that the Bureau would likely require more information from merging parties to conduct econometric analyses. In March 2018, the Bureau released for comment a draft bulletin that outlines its approach to the efficiencies analysis, as reflected in the recent cases discussed above. Once finalised, this should be a very useful resource for merging parties and their advisers. Importantly, Bureau personnel have noted that where efficiencies will be a factor, parties should expect that the claims will receive close scrutiny and that the merger review may take considerable time.
GTDT: What lessons can be learned from recent cases to help merger parties manage the review process and allay authority concerns at an early stage?
KA: Generally speaking, the review process is fairly predictable, particularly for purely domestic mergers. As noted, non-complex mergers are typically completed within the 14–day service standard period, though it should be noted that the Bureau gets to determine when it starts the clock based on its determination that it has sufficient information to commence its review. Timing is a little less predictable when the matter is rated as complex by the Bureau, which is when the matter involves a vertical merger or a merger between competitors, when the combined market share exceeds 35 per cent, or where the transaction is likely to create or enhance the parties’ market power. In addition, a matter can be considered complex even where the combined share is less than 35 per cent if at least one of a number of factors is present, such as concentrated markets, credible complaints, a lack of remaining competition, the need for efficiencies analyses or the need to coordinate with foreign competition agencies.
An important consideration for multi-jurisdictional merger reviews is to coordinate to the extent possible the commencement of the waiting periods. Both Canada and the US have initial waiting periods of 30 calendar days, and the agencies in both countries have a close working relationship. They have produced a best practices guide to cross-border merger review, and allowing the agencies to cooperate (by providing waivers) can streamline the process to some degree and save the clients costs. For example, interviews with client representatives or experts can be conducted jointly. Agencies will coordinate on remedies where possible as well. Fortunately, the Bureau is willing to accept remedies agreed to with foreign agencies and does not require a separate, formal Canadian remedy where the foreign remedy will address its concerns. However, if the remedy requires divestitures in Canada, a consent agreement will typically be required. In its recent review of the merger of Valspar and Sherwin Williams, the Bureau and the Federal Trade Commission agreed to use the same monitor to ensure compliance with the consent orders. Given the benefits of permitting agencies to cooperate, parties are generally encouraged to provide waivers early in the review process to permit inter-agency coordination.
As mentioned, the Bureau’s recent draft guidance on efficiencies analyses also provides useful lessons from the recent Canexus transactions as well as Superior Plus LP’s acquisition of Canwest Propane. In the Canexus cases, the Bureau cleared the transactions based on the efficiencies gains outweighing the anticompetitive effects, whereas in the Superior Plus case, efficiencies trumped anticompetitive effects in 10 markets but divestitures were required in 12. One of the key lessons is that the Bureau appreciates receiving efficiencies reports as early in the process as is feasible, and that waiting until the Bureau reaches a conclusion on the lessening of competition issue will likely result in the need for a timing agreement to prevent closing after the expiry of the waiting period.
GTDT: What do recent cases tell us about the enforcement priorities of the authorities in your jurisdiction?
KA: The Bureau has noted that in making decisions to allocate its limited enforcement resources, it seeks out cases that will have an impact on as many Canadians as possible and will send an appropriate message of deterrence to other industry players. This approach may be better suited to misleading advertising and unilateral conduct cases than mergers, where the Bureau reviews the cases that meet the mandatory filing thresholds of the Competition Act. That being said, the mergers branch has been very busy in the past 18 months reviewing retail gas station acquisitions. Canadians complain frequently about high gas prices, and the Bureau has a portion of its website dedicated to explaining its activities in this space.
In March, 2016, Imperial Oil Limited announced its plan to sell almost 500 Esso branded retail gas stations to five fuel distributors. One buyer, Couche-Tard, planned to acquire 293 stations, in a transaction that was cleared in September 2016 following the buyer agreeing to a number of divestitures. The sale of IOL’s gas station portfolio resulted in seven supplementary information requests and numerous detailed reviews of the affected local markets.
Despite increased attention on the role of public interest factors in antitrust law, Bureau officials, including the Commissioner, have indicated in recent remarks their preference to keep Canada’s antitrust law focused solely on economic analysis. The Bureau is an independent law enforcement agency, and is meant to apply the law without concern for the political agenda of the government. It understands that some of its decisions may not be popular because of its narrow focus, and has taken steps to educate the public about its limited mandate. For example, in clearing Postmedia’s acquisition of Sun Media’s English-language newspaper business, which resulted in Postmedia gaining control of both major dailies in three major Canadian cities: the Calgory Sun and Calgary Herald, the Edmonton Sun and Edmonton Journal, and the Ottawa Sun and Ottawa Citizen. The Bureau solicited public feedback on the merger, but made clear that its focus would be on the impact of the deal on advertising markets, not editorial diversity.
GTDT: Have there been any developments in the kinds of evidence that the authorities in your jurisdiction review in assessing mergers?
KA: There have not been any major developments in the kinds of evidence that authorities review in assessing mergers. There has been an increase in transparency about the kind of information that the Bureau would like to see when dealing with efficiency analyses. The recent publication of the Bureau’s draft guide to efficiencies analysis in merger reviews is in part intended to level the informational playing field among merging parties and their advisers, given the small number of matters that require an in-depth efficiencies analysis. The draft contains descriptions of common methodologies used to quantify anticompetitive effects, as well as the type of information that the Bureau may seek to quantify the effects and the potential efficiencies.
GTDT: Talk us through any notable deals that have been prohibited, cleared subject to conditions or referred for in-depth review in the past year.
KA: The last case that the Commissioner sought to block in its entirety was the Staples/Office Depot merger in late 2015. The transaction was also challenged in the United States, and was the first case to be challenged through simultaneous court challenges by the Bureau and Federal Trade Commission. The parties abandoned the merger in May 2016 following the issuance of an injunction in the US to prevent closing. Following that decision, the Commissioner withdrew his challenge to the deal. The proceedings in Canada were essentially paused while the injunction was argued in the US.
A number of cases were cleared following negotiated settlements with the Commissioner, including Abbott/Alere, Superior Plus/Gibson Energy, Couche-Tard/CST, Dow/DuPont, Valspar/Sherwin Williams, and Bell/MTS. Some of these have been discussed, and the Superior Plus/Gibson Energy merits further discussion.
Superior Plus proposed to acquire the Canwest Propane business of Gibson Energy in a transaction announced in February 2017. The matter was ultimately resolved by way of negotiated consent agreement in September 2017. The transaction is notable because the parties were able to convince the Bureau that it would result in significant efficiencies in 10 of the 22 markets where the Bureau identified the deal would likely result in a substantial lessening of competition. Accordingly, divestitures were agreed to in the remaining 12 markets.
The case is notable because it continued the trend started by the two Canexus decisions of the Bureau being willing to conduct the efficiencies trade-off on its own, and a close reading of the footnotes in the Bureau’s draft guide to efficiencies reveals that the Superior Plus case was a major influence for the guide.
GTDT: Do you expect enforcement policy or the merger control rules to change in the near future? If so, what do you predict will be the impact on business?
KA: There are no major policy or rule changes expected in the near future with respect to merger control in Canada and no pending material legislative amendments to the Competition Act. Commissioner Pecman concludes his five-year term in mid-2018, and as such is unlikely to deviate from his previous approach as he approaches retirement. The Commissioner has made clear his view that he’d like to see changes to the efficiencies defence, as he considers the Canadian provision to be out of step with the approaches taken in other jurisdictions.
It is expected that a new Commissioner will not be appointed immediately, therefore an acting Commissioner will be appointed for an interim period. It is unlikely that an acting Commissioner would stray from the status quo. Whether a new permanent Commissioner will pursue other priorities will be something to watch.
The Inside Track
What are the most important skills and qualities needed by an adviser in this area?
Being a team player is key – working with colleagues negotiating the transaction agreements and liaising with clients to obtain the necessary facts for merger filings and competitive effects briefs. Being able to communicate effectively and synthesise various sources of information are also important to ensure that clients, who likely have not gone through a merger review before, understand the process and the range of outcomes. Finally, when working on multi-jurisdictional teams, it’s important to appreciate and respect the differences in regulatory regimes while ensuring consistent theories are advanced to all agencies.
What are the key things for the parties and their advisers to get right for the review process to go smoothly?
Planning a timeline and understanding what information the case officers need at what point in the review are helpful in that regard. Communicating clearly with the parties about expectations and informational needs minimises the chances that work will need to be redone, which costs time (and money), and both are generally in short supply during a merger review.
What were the most interesting or challenging cases you have dealt with in the past year?
My partner Michael Brown and I successfully represented First Air in a multifaceted Competition Bureau investigation. First Air is an airline that serves Canada’s far north. Initially, the Bureau commenced reviews of two non-notifiable transactions, one of which was an asset sale to a competing airline followed by a code-share agreement, and the other was merely a code-share agreement with a third competitor. The Bureau took considerable time to review those transactions and ultimately concluded that there was no basis to challenge the first agreement, in part because there would be efficiencies that outweighed any anticompetitive effects. The second agreement was reviewed under the civil agreements with competitors provision. During the course of the review, First Air decided to terminate the code-share for business reasons, which led the Bureau to conclude its review of that issue. Finally, during the course of these reviews, a new entrant announced plans to enter. Both First Air and one of its code-share partners lowered fares, with the result that the new entrant abandoned its plans to enter. This led to a predatory pricing investigation, which we successfully defended, leading the Bureau to close its file.
Norton Rose Fulbright Canada LLP