Competition Bureau Clears GardaWorld’s Acquisition of G4S With Commitment to Change Contracting Practices
On March 13, 2014, the Competition Bureau issued a qualified No Action Letter to Garda World Security Corporation (GardaWorld) that it will not, at this time, challenge the transaction given, among other things, GardaWorld’s commitment to change certain of its contracting practices. In its review of GardaWorld’s acquisition of G4S Cash Solutions (Canada) Limited (G4S), the Bureau concluded that the transaction raises competition concerns in Quebec as GardaWorld and G4S Canada were identified as the two largest providers of armoured car services. To address the Bureau’s concerns, GardaWorld committed to not enforcing certain terms in existing contracts for services in Quebec and that it would change certain of its contracting practices for the next three years.
Notably, the Bureau’s clearance of this transaction resulted in a remedy that appears to be behavioural in nature. In the past, the Bureau has been reluctant to accept behavioural remedies (preferring structural remedies, such as divestment). Coupled with the Bureau’s acceptance late last year of a behavioural remedy in respect of TELUS Communications Inc.’s acquisition of Public Mobile, this may signal a shift in the Bureau’s approach to merger review enforcement. The Bureau also made the ominous statement that it intends on monitoring the post-merger competitive dynamics in the industry, indicating that "should there be evidence of conduct in violation of the Act, the Commissioner will not hesitate to take appropriate action".
The Bureau reviewed a large volume of information obtained from GardaWorld and G4S, including strategic documents, business plans and customer bidding/switching data. The Bureau also interviewed and obtained information from third parties, including Brink’s Canada Limited which was identified as the only significant remaining competitor in Quebec. The Bureau’s review focussed on whether Brink’s Canada would effectively discipline GardaWorld’s ability to exercise market power post-merger. From the information it obtained, the Bureau found that barriers to entry are high, but that an established armoured car service provider with a strong reputation may not face the same barriers as a new entrant. The Bureau also determined that competition was hindered by contract terms such as renewal periods, lengthy notice periods and penalty clauses for early termination. The Bureau found that over 85% of the parties’ contracts contain automatic renewal clauses and penalties for early termination. And, contracts with larger customers tended to have terms of three years or more.
GardaWorld committed to not enforce certain terms in existing contracts and to abide by certain contracting practices for three years. Particulars include: customers can terminate their contracts on 30 days written notice without penalty, contracts are limited to two years and will not contain renewal clauses (unless requested by the customer), GardaWorld will have no right of first refusal or right to know about contract offers from third parties, price increases must be notified 45 days in advance, and GardaWorld will notify all customers in Quebec of the terms of its commitment to the Bureau.
Interestingly, the Bureau accepted what appears to be a behavioural remedy from GardaWorld. This is notable given the Bureau’s general preference for structural (i.e. divestitures) over behavioural remedies (see Competition Bureau Information Bulletin on Merger Remedies in Canada). It is also worth noting that a consent agreement, which is the usual manner in which remedies are formalized, was not required by the Bureau.
For further detail regarding the Bureau’s review of the GardaWorld/G4S transaction, see the Bureau’s position statement here.