Merger Notification

The Competition Act, through filing thresholds, establishes a regime for mandatory merger notification of transactions that exceed certain monetary and, where applicable, shareholding levels. The Commissioner of Competition, however, can challenge a merger under the Competition Act (by way of application to the Competition Tribunal) whether or not it is notifiable.

The merger notification provisions of the Competition Act apply to a number of types of transactions, namely proposed acquisitions of assets or shares, proposed amalgamations and the proposed contribution of assets to, or acquisition of interests in, unincorporated business combinations. A proposed transaction, however, is only notifiable if it exceeds certain monetary and, where applicable, shareholding thresholds. If a proposed transaction is notifiable, a filing must be made and waiting periods must expire before the transaction may close. Further, as discussed below, substantive review of the merger by the Competition Bureau may well require additional time.

Filing Thresholds

Determination of whether a transaction exceeds the thresholds for merger notification under the Competition Act depends on the specific structure of a given transaction. Generally, however, a proposed transaction is notifiable if it exceeds:

    (a) a "size of the parties" threshold (book value of assets in Canada or revenues in, from or into Canada of the parties and their affiliates greater than CDN$400-million), and

    (b) a "size of the transaction" threshold (generally, CDN$50-million - CDN$70-million for amalgamations - based on the book value of the subject assets or company in Canada, or gross revenues from sales in or from Canada generated from those assets or by the company.)

In the case of share acquisitions, an additional "shareholding threshold" must be exceeded (i.e., acquisition of more than 20 percent of the voting shares of a public corporation or more than 35 percent of the voting shares of a private corporation, or, if these shareholding levels are already exceeded, acquisition of an additional interest resulting in a more than 50 percent shareholding in either a public or private corporation).

Special rules exist for determining asset and revenue values. Also, special rules exist for formation of business combinations otherwise than through a corporation, or the acquisition of interests in such a combination.

Filing

Where a transaction exceeds the filing thresholds, parties to a transaction have the option of filing either a short-form or long-form notification. The Competition Act prohibits completion of a notifiable transaction for a period of 14 days from the date on which a short-form notification filing is made, or 42 days from the date on which a long-form notification filing is made.

Given the substantially longer statutory waiting period associated with a long-form notification filing, combined with its substantially greater information requirements, parties generally opt to file only a short-form notification. The Commissioner of Competition, however, may, at any time during the 14-day statutory waiting period in respect of a short-form notification, give notice to the parties that he requires that they file a long-form notification in respect of a transaction. Where this occurs, a new 42-day statutory waiting period will commence from the day on which the parties file a long-form notification.

The Competition Act allows for the Commissioner to issue an Advance Ruling Certificate (an "ARC") if the Commissioner is satisfied that he would not have sufficient grounds on which to challenge a proposed transaction in the Competition Tribunal. If an ARC is issued, it is not necessary to file a notification in respect of a proposed transaction if the transaction is completed within one year from the date of issuance.

If the Commissioner denies the request for an ARC, he may issue a section 113 letter waiving the obligation to notify and stating that he has no current intention to challenge the transaction (a "no-action" letter). Parties regularly close transactions on the basis of a no-action letter. If the Commissioner has concerns about the transaction that are not being met, he could request a notification filing and, in such a case, the statutory waiting period would apply.

Merger notifications under the Competition Act, whether in short- or long-form, are subject to a filing fee in the amount of CDN$50,000. If an ARC is requested by a Canadian resident, goods and services tax ("GST") must also be paid.

Extra Time For The Bureau's Review

Notwithstanding that the Competition Act specifies statutory waiting periods in respect of notifiable transactions, the Competition Bureau may require more time to complete its review of a proposed transaction. The Bureau has established a practice of designating transactions based on their level of complexity, with each level being attributed a service standard period within which the Bureau seeks to complete its review of a transaction. In particular, the Bureau designates transactions as non-complex, complex or very complex, with maximum turnaround times of 14 days, 10 weeks and five months, respectively. These turnaround times commence from the time that the Bureau is satisfied that it has all of the information that it requires to complete its assessment of a proposed transaction. Actual timing will be affected by information submitted by the parties with their notification filing. In practice, the Bureau often completes its review within the applicable service period.

The Merger Review Process

All mergers, as defined in the Competition Act, are potentially subject to review, regardless of whether they meet the thresholds for notification. As such, even if a merger is not notifiable under the Competition Act, it is important to consider whether it may raise any issues under the Competition Act's substantive merger provisions.

The Commissioner of Competition has broad powers to challenge, by way of application to the Competition Tribunal, a proposed or completed merger, in whole or in part, if he or she believes that it will, or is likely to, prevent or lessen competition substantially in any relevant market. The Commissioner's powers include the power to apply to the Competition Tribunal for an injunction to prevent a merger from closing before the Commissioner is able to complete his or her review. Ultimately, the Commissioner may decide to make an application to the Competition Tribunal for a remedial order, as well as an interim order pending the Competition Tribunal's decision in respect of the Commissioner's application, if he or she is satisfied that a merger prevents or lessens competition substantially, or is likely to do so.

The Commissioner may apply to the Competition Tribunal for a remedial order in respect of a merger any time within three years after the substantial completion of the merger, unless the Commissioner has issued an Advance Ruling Certificate (an "ARC") in respect of the merger pursuant to section 102 of the Competition Act (see filing).

Even where a merger results, or is likely to result, in a substantial prevention or lessening of competition, section 96 of the Competition Act prohibits the Competition Tribunal from issuing an order if it finds that "the merger or proposed merger. . . has brought about or is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening that will result or is likely to result from the merger or proposed merger and that the gains in efficiency would not likely to be attained if the order were made." The Federal Court of Appeal has held (in a decision on which the Supreme Court of Canada refused leave for an appeal) that in measuring the economic losses against which the efficiency gains of a merger should be weighed, a total surplus standard, which considers only the "deadweight loss" resulting from the merger, is too narrow. Instead, it accepted the so-called "balancing weights" approach put forward by the Commissioner, which involves an evaluation of a number of costs to society that would result from a merger, including deadweight loss but also the transfer of wealth from consumers to purchasers caused by an increase in price, loss of product choice and the creation of a monopoly.

The Competition Bureau issued a paper on efficiencies on September 23, 2004 requesting interested parties to submit comments by December 21, 2004 on the options set out in the paper.