Competition Bureau Lowers Merger Control Threshold
By The Competition/Antitrust & Foreign Investment Group of McCarthy Tétrault LLP
Certain classes of transactions that exceed prescribed thresholds require pre-merger notification under Canada’s Competition Act. Such transactions cannot be completed until notice has been given to the Commissioner of Competition and the statutory waiting period has expired or, alternatively, has been terminated early or waived by the Commissioner. One of these thresholds, the transaction-size threshold, is subject to an annual index adjustment. As of February 13, 2021, the transaction-size threshold decreases to C$93 million (from C$96 million in 2020). In general terms, this threshold looks at the aggregate value of assets in Canada of the target and its subsidiaries (or of the assets in Canada that are the subject of the transaction) or the annual gross revenues from sales in or from Canada generated by those assets. The precise test varies by the type of transaction (e.g asset, equity or amalgamation). No other changes have been made to the pre-merger notification regime, including to the other applicable threshold for notification. Accordingly, where the size of transaction threshold is exceeded, a merger will require pre-merger notification where the other elements of the notification test are also met (i.e., the “operating business” condition, the C$400 million size of parties threshold and, where applicable, the equity threshold) and no exemption applies.
It is important to remember that the Commissioner of Competition can review and challenge all mergers, whether or not they are notifiable, within one year of closing before the Competition Tribunal. The Commissioner has in the past reviewed non-notifiable transactions, including Evonik/PeroxyChem, Dow/DuPont, Iron Mountain/Recall, and Tervita/Complete, and in 2019 the Competition Bureau expanded the role of its Merger Intelligence and Notification Unit to include a broader focus on identifying and investigating non-notifiable merger transactions. As such, a substantive competition analysis should be part of the assessment of proposed transactions of any size that may give rise to competition issues in Canada.
The Government also recently lowered the applicable thresholds under the Investment Canada Act.
Under the Investment Canada Act, the direct acquisition of control of a Canadian business by a non-Canadian is subject to a pre-closing application filing and approval requirement where a specified threshold is exceeded. The following thresholds have decreased for 2021.
Non-State-Owned Enterprise WTO Investments - The thresholds that will apply to most direct acquisitions of control of a Canadian business by non-Canadian, non-state-owned enterprise investors from WTO member countries have decreased:
- Where the acquirer or the target is a non-state-owned enterprise “trade agreement investor”, the review threshold has decreased to C$1.565 billion (from C$1.613 billion in 2020) in enterprise value of the target. Trade agreement investors include entities and individuals whose country of ultimate control is party to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Canada-EU Comprehensive Economic and Trade Agreement, the North American Free Trade Agreement and other bilateral trade partners. This currently includes investors controlled in the U.S., EU Member States, Mexico, South Korea, Chile, Peru, Columbia, Honduras, Panama, Australia, Japan, Malaysia, New Zealand, Singapore and Vietnam.
- Where the non-state-owned enterprise acquirer or target is controlled in other WTO member states (such as investors controlled in China), the review threshold has decreased to C$1.043 billion (from C$1.075 billion in 2020) in enterprise value of the target.
State-Owned Enterprise WTO Investments - The threshold for direct acquisitions of Canadian businesses by non-Canadian, WTO investors that are state-owned has also decreased to C$415 million (from C$428 million in 2020) in gross book value of assets on consolidated balance sheets.
The thresholds relating to investments in cultural businesses and acquisitions by investors for non-WTO member states did not change in 2021.
It is worthwhile to remember that the Canadian government can review most direct or indirect equity and asset investments (including minority investments) involving a Canadian entity, or establishment of a new Canadian entity, by a non-Canadian on national security grounds. Where a proposed transaction may raise national security concerns, it is important that parties consider filing and timing strategies with respect to when and how to approach the Investment Review Division of Innovation, Science and Economic Development.