Efficiencies in Merger Reviews: Competition Bureau Issues Draft Model Timing Agreement
Published by the Competition / Antitrust & Foreign Investment Group
On July 16, 2019, the Competition Bureau (Bureau) issued a draft model timing agreement for use in the review of unconsummated mergers where the parties intend to rely on the efficiencies defence under section 96 of Canada’s Competition Act (Act).
This defence, which is unique to Canada’s merger control law, allows transactions that otherwise would be blocked to proceed where the efficiencies likely to result from a merger are greater than, and would offset, any likely anti-competitive effects, and those efficiencies likely would be lost if the Competition Tribunal (Tribunal) were to issue a remedial order. Under the defence, the Bureau has the burden of proving the likely anti-competitive effects, while the merging parties bear the burden of proving the likely efficiencies. Although the Bureau has recently confirmed that it has elected not to challenge a few mergers due to the efficiencies defence, the Commissioner of Competition, who leads the Bureau, had earlier this year previewed the fact that reliance on the efficiencies defence would be subject to significant scrutiny, noting that: “I am highly unlikely to exercise my enforcement discretion and not challenge a potentially anti-competitive merger without reliable, credible, and probative evidence that supports and validates the efficiencies defence being advanced.”
While proving likely efficiencies to the satisfaction of the Bureau was already a lengthy and intensive process, the Bureau’s proposed model timing agreement will extend the review process and may make it more onerous in those cases where the parties elect to delay closing until the Bureau has confirmed that it will not challenge the merger on the basis of the efficiencies defence.
The features of the draft model timing agreement, which would be an agreement between the merging parties and the Bureau, that will be likely to place the greatest degree of burden on merging parties include the following:
- Merging parties must give the Bureau at least 30 days’ notice before closing, which notice cannot be given before the parties are already in a legal position to close under the Act, thereby giving the Bureau at least an additional 30 days beyond the end of the statutory waiting period.
- The merging parties must each make a representative available for oral examination under oath about the claimed efficiencies. The Bureau does not otherwise have this power without obtaining a court order.
- When responding to a Supplementary Information Request (SIR), which can be a large and onerous request for information (akin to a second request under the U.S. HSR process) that typically will be issued in cases where the efficiencies defence is most likely to be relevant, merging parties must provide any data requested by the Bureau at least 30 days before certifying compliance the SIR, which prioritization may give the Bureau yet additional time beyond the statutory period.
- Given the timeframes set out in the proposed model timing agreement, the Bureau’s review could extend as much as 80 days beyond the statutory review period under the Act.
On the other hand, a key benefit of the model timing agreement is that the Bureau will provide the merging parties with feedback at specified intervals and complete its assessment within a specified time period. For example, the Bureau would commit to a meeting with its management to outline its concerns and identify further information or analysis that would be useful to its review; thereafter, the Bureau would update the parties with an assessment of its concerns, indicate where it believes a remedy is required and deliver its view of the parties’ efficiencies claims on a without prejudice basis. This should provide a level of transparency and timing certainty that merging parties may not otherwise receive.
It is important to recognize that the merging parties are not obligated to enter into a timing agreement with the Bureau. Subject to the Bureau obtaining an injunction from the Tribunal, it is always the merging parties’ option to close their transaction once the statutory waiting period has expired where the merger is notifiable under the Act, or at any time for non-notifiable transactions. In such circumstances, the merging parties assume the risk that the Bureau could challenge the transaction at any time within one year after closing. Even in the scenario of a post-closing challenge, nothing prevents the Bureau from withdrawing its case should it become satisfied during the litigation that the merging parties have a strong efficiencies defence. The benefit of the new model timing agreement process is that it would allow Bureau to assess efficiencies claims pre-closing, thus eliminating risk to the parties of a post-closing challenge. The “cost” of doing so is a process that will extend well beyond the statutory waiting period. Accordingly, where parties expect to rely on efficiencies, it would be prudent to negotiate an outside date in the merger agreement that reflects the extended timeline. While the Bureau cannot ignore efficiencies in its enforcement decision-making whether or not the parties agree to enter into a timing agreement, the Bureau will be likely to insist on a timing agreement going forward if the parties intend to rely on the efficiencies defence and want to receive comfort from the Bureau before closing.
The Bureau has invited feedback from the public on its draft model timing agreement by no later than August 30, 2019.
 Matthew Boswell, “No River too Wide, No Mountain too High: Enforcing and Promoting Competition in the Digital Age” (speech), May 7, 2019.