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Merger Control in Canada

An interview with Kevin Ackhurst

Norton Rose Fulbright (Toronto)


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 chaired the Foreign Investment Review Committee of the Canadian Bar Association’s National Competition Law Section in 2017–2018, and in 2012–2013 he chaired the Section’s Mergers Committee. Kevin has been designated as an Acritas ‘Star’ lawyer in 2017, 2018 and 2019.

He is currently advising Makivik Corporation in connection with the merger of First Air and Canadian North, and Parmalat SpA in connection with Parmalat Canada’s proposed acquisition of the natural cheese business of Kraft Heinz Canada. He recently advised Tervita Corporation on its acquisition of Newalta Corporation; Green Growth Brands in its proposed acquisition of Aphria; 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 fiscal 2017–18 compared to 2016–17, but was still below 2014–15 levels. That said, there were more complex mergers in 2017–18 than in any of the past four years, and the average duration of a complex merger review was longer in 2017–18 than in previous years, up only slightly from 2016–17. In fiscal 2017–18, close to one third of all merger reviews were classified as complex, compared to less than a quarter in 2016–17. For matters classified as non-complex, the Bureau met its service standard period – which is the maximum amount of time the Bureau is meant to take to complete its reviews – in 96 per cent of cases, a decrease from 99 per cent in 2016–17. The average review period for non-complex mergers was just under 11 days; 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 86 per cent of cases in 2017–18, a jump from 74 per cent in 2016–17 but more on a par with the 85 per cent figure in 2015–16. The average review time for a complex matter was just under 53 days in 2017–18.

In terms of areas of focus, the relationship between competition and innovation remains key. Innovation was mentioned in practically every speech delivered by the former Commissioner of Competition John Pecman over the final months of his term, as well as by his successor, Matthew Boswell. 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 anti‑competitive 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. In its most recent annual report, the Bureau noted that they had commenced 30 new digital economy cases, resolved 31 of them, and had 42 digital economy cases ongoing at year end.

In its 2017–2018 annual report, the Bureau highlighted its examination of the Dow/DuPont merger as an example of enforcement action designed to ensure that mergers do not harm competition and innovation. The Bureau cleared the deal subject to certain divestitures. The former Commissioner 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 former Commissioner has noted refers to innovation 17 times.

One of the key recent developments has been the willingness of the Competition Bureau to clear transactions that it acknowledges are likely to have an anti-competitive 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 recent cases, the Bureau outright cleared mergers it considered anti-competitive because of the efficiencies defence; in another 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 anti-competitive 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 anti-competitive 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 recent crop of 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. At the time of writing, the draft bulletin has not been finalised. Interestingly, in February 2018, Tervita announced the acquisition of one of its competitors, Newalta Corporation. The parties closed the transaction before the Bureau had completed its review, claiming a desire to move forward to quickly realise anticipated efficiency gains. The Bureau did not seek to block closing and as such the Bureau’s review remains ongoing; the Act provides the Commissioner with up to one year post-closing to take action under the merger provisions.

Bureau officials, including the former Commissioner, have indicated their preference to keep Canada’s antitrust law focused solely on economic analysis.

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, the review process is fairly predictable, particularly for purely domestic mergers. As noted above, non-complex mergers are typically completed within the 14-day service standard period, though the Bureau gets to determine when it starts the clock running 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 will be the case 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 United States 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 not require a separate, formal Canadian remedy where the foreign remedy will address the Bureau’s concerns. However, if the remedy requires divestitures in Canada, a consent agreement will typically be required. In the Bureau’s 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 noted above, the Bureau’s 2018 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 anti-competitive effects, whereas in the Superior Plus case, efficiencies trumped anti-competitive 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 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: Despite increased attention on the role of public interest factors in antitrust law, Bureau officials, including the former Commissioner, have indicated in 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 of the day. The Bureau does understand 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.

In terms of areas of focus, the relationship between competition and innovation remains key.

For example, in clearing Postmedia’s acquisition of Sun Media’s English-language newspaper business, Postmedia gained control of both major dailies in three major Canadian cities: The Sun and Herald in Calgary, the Sun and Journal in Edmonton and the Sun and Citizen in Ottawa. 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.

By contrast, the Canada Transportation Act explicitly provides for a public interest review in respect of transactions that are notifiable under the Competition Act and that involve transportation undertakings. Under the Canada Transportation Act, the Minister of Transportation can order a public interest review of such a merger, which takes the final decision on a transaction out of the hands of the Commissioner of Competition and the Competition Tribunal. The Commissioner provides a report to the Minister on any competition concerns, but the Minister will also receive a report assessing the transaction against a number of public interest criteria, such as the impact of the transaction on the economy, on users of the transportation service, on safety, security and the environment.

In 2018, the Minister ordered a public interest review of an airline merger for the first time (the proposed merger of First Air and Canadian North, two airlines that serve remote communities in Canada’s far north). The Bureau has expressed concerns about the impact of the transaction on competition. However, the federal cabinet, on the recommendation of the Minister, have the final say in approving the transaction subject to any terms and conditions they consider necessary to address public interest and competition concerns. The review of that transaction remains ongoing at the time of writing.

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. Rather, 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 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 anti-competitive effects, as well as the type of information that the Bureau may seek to quantify the effects as well as the potential efficiencies. As noted above, the bulletin remains in draft form.

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: In May 2018, the Commissioner announced that he would not approve a transaction announced in October 2017 involving the acquisition by BCE Inc of two French-language specialty television stations, Historia and Séries+, from Corus Entertainment Inc. The two stations had previously been part of a divestiture package when BCE acquired other media assets in 2013, and one of the conditions of the divestiture was that there could not be a re-purchase of any divested assets for a period 0f 10 years without the approval of the Commissioner. The Commissioner reviewed the proposed acquisition, focusing on what, if any, competitive conditions had changed from the time of the 2013 transaction. Ultimately, the Commissioner concluded that there had not been any material changes, and that the terms of the 2013 consent agreement should remain in force, and as such BCE was not permitted to acquire the two businesses.

Other than the BCE matter, 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 the decision, the Commissioner withdrew his challenge to the deal. Of note is that the proceedings in Canada were essentially paused while the injunction was argued in the United States.

Since January 2018, a number of cases were cleared following negotiated settlements with the Commissioner, including La Coop fédérée/Cargill Limited, Linde Aktiengesellschaft/Praxair, Inc, BASF SE/Bayer AG, Bayer AG/Monsanto Company and Metro Inc/The Jean Coutu Group (PJC) Inc. A number of these were multi-jurisdictional mergers where remedies were required in other jurisdictions. The Cargill transaction involved the acquisition by La Coop fédérée of Cargill’s grain and retail crop inputs businesses. The Bureau determined that the transaction was likely to result in a substantial lessening of competition with respect to the retailing of crop inputs in certain areas of Ontario, and as a result a number of divestitures were required. The Metro Inc transaction involved the acquisition by Metro, one of the leading grocery retailers in Canada, of one of the leading pharmacy chains in Quebec. Metro also owned a pharmacy business, so in certain markets the Commissioner concluded that divestitures were required.

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. Former Commissioner Pecman concluded his five-year term in mid 2018, and was succeeded by Senior Deputy Commissioner Matthew Boswell, who served as Interim Commissioner until being named permanent Commissioner in March 2019. It remains early days in the new Commissioner’s mandate, and he has not yet given any major speeches that point to any new policy directions. Having been in senior management at the Bureau prior to his appointment as Commissioner, it is unlikely there will be significant changes in approach.

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 is also key to ensuring that clients, who likely have not gone through a merger review before, understand the process and the range of outcomes. Finally, working on multi-jurisdictional teams, it is 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, neither of which are generally in abundance during a merger review.

What were the most interesting or challenging cases you have dealt with in the past year?

I have been working for Makivik Corporation, a Land Claims Organization that represents the interests of the James Bay Cree of Northern Quebec, on the proposed combination of Makivik’s wholly owned subsidiary First Air with one of its main competitors, Canadian North. These two airlines serve remote communities in Canada’s north, where air travel can often be the only means of transport between communities. We had previously advised First Air on a code share with Canadian North, and in the summer of 2018 the parties announced their intention to merge. As noted above, the transaction is the first airline merger to undergo a public interest review under the Canada Transportation Act. Under that process, the Commissioner of Competition undertakes a review of the merger under the Competition Act, but then submits a report to the Minister of Transport (which is also made public) identifying any concerns from a competition perspective. The Minister then considers that report along with other public interest considerations in making a recommendation to the federal cabinet on whether to approve the transaction. The review remains ongoing. I was also fortunate to advise Tervita Corporation in their recent acquisition of Newalta Corporation. The client was eager to close quickly so that they could begin realising the considerable synergies that they had identified between the two companies. That meant they were prepared to close shortly after the waiting period had expired and before the Bureau’s review was completed.

Kevin Ackhurst
Norton Rose Fulbright Canada LLP
Toronto
www.nortonrosefulbright.com


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