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Seizing Control: Amendments to Canada’s Merger Control Regime

The Canadian Competition Act’s merger provisions are set to be significantly reshaped through Bill C-56, which was enacted on December 15, 2023, and Bill C-59, which is currently before Parliament. While the merger control regime has been left largely untouched for the past 15 years, the recently enacted and further proposed changes are expected to increase the number of notifiable transactions, recalibrate the substantive review framework and implement enforcement-oriented procedural changes. Taken together, the legislative changes will bring more mergers to the Competition Bureau’s (the “Bureau”) attention and facilitate the Bureau’s ability to challenge mergers it considers anti-competitive.

  1. More Notifiable Transactions

While the Bureau has jurisdiction to review and challenge any “merger” (which is broadly defined under the Competition Act and includes both acquisitions of control and of significant minority interests), only mergers that satisfy statutory criteria are subject to mandatory pre-closing notification and review. Mergers that do not meet these statutory criteria can nonetheless be notified to the Bureau on a voluntary basis. As detailed below, Bill C-59 will make two notable technical changes to those criteria, which are expected to increase the number of transactions that will require mandatory pre-merger notification to the Bureau.

By way of background, broadly, there are three key criteria that must always be satisfied for a mandatory pre-merger notification filing to be triggered (additional criteria and exemptions also apply in particular circumstances):

  1. Operating Business:The target must carry on an “operating business”, which, under the Competition Act, means “a business undertaking in Canada to which employees employed in connection with the undertaking ordinarily report for work.”
  2. Size-of-Parties Threshold: The parties to the transaction (together with their affiliates) must have a combined aggregate book value of assets in Canada, or combined annual gross revenues from sales in, from and into Canada, exceeding CAD 400 million.
  3. Size-of-Transaction Threshold: While the precise application of this threshold varies based on the transaction type, broadly, the threshold requires that the subject matter of the transaction (e.g., the target corporation together with its controlled subsidiaries or the target assets) have a book value of assets in Canada exceeding CAD 93 million, or that the annual gross revenues from sales in and from Canada generated from the assets in Canada exceed CAD 93 million (the monetary value of this threshold can be adjusted annually based on GDP growth). Furthermore, in the case of an equity transaction, the purchaser must be acquiring more than 20% of the voting shares of a public corporation or more than 35% of the voting shares of a private corporation or, if the entity being acquired is not a corporation (e.g., a partnership), a right to more than 35% of its profits or assets on dissolution (where the purchaser exceeds the 20% / 35% equity threshold but less than a majority, the acquisition must result in the purchaser owning more than 50%).

Bill C-59 proposes two technical changes to the Size-of-Transaction threshold, each of which will cause more transactions to satisfy this requirement:

  • First, under Bill C-59, sales ­into Canada (i.e., import sales) will count towards the revenue branch of the test (in addition to sales in or from Canada). As the operating business requirement will continue to apply, the target will still need to have some physical presence in Canada (i.e., businesses that do not have a presence in Canada other than through import sales will remain out of scope). Based on our past experience, while the continued requirement of an operating business will remain an important and substantial limiting factor on the number of transactions that will need to be notified, the inclusion of import sales in the revenues calculation is nonetheless expected to result in a material number of additional filings being required. As currently drafted, this change will apply to any transaction that has not yet closed as of Bill C-59’s implementation (and notwithstanding that the transaction agreement may have been executed prior to the implementation of Bill C-59). As such, it is important for parties to already begin accounting for the possibility of this rule change in their transaction planning, and assess whether – as at closing – the transaction would be notifiable based on any additional “into Canada” revenues.. In such case, unless the contractual outside date provides sufficient time to obtain Competition Act clearance or the parties have voluntarily sought Competition Act clearance, the new law could impact on their ability to complete their transactions as planned.
  • Second, under the current framework, the size-of-transaction threshold is assessed separately for share acquisitions and asset acquisitions, even where both acquisitions are occurring as part of a single transaction. Under Bill C-59, this will no longer be the case. Rather, a new provision will be added to the Competition Act, providing that the assets and revenues associated with asset and share acquisitions must be aggregated where both acquisitions form part of the same transaction. [NB: As an aside, this proposed amendment was not comprehensive in that it does not cover the following structures: (a) a combination of assets and equity of a non-corporate entity, (b) a combination of the shares of a corporation and equity of a non-corporate entity; or (c) an acquisition of multiple corporations from the same vendor that are sister companies of each other.] While this change will implicate a smaller number of transactions as compared to the addition of “into Canada” sales, it will also apply to any transaction that has not yet closed as of Bill C-59’s implementation and should be proactively accounted for when planning dual structure transactions.
  1. Revisions to the Substantive Review Framework

Bill C-56 has already markedly reformed the Competition Act’s substantive merger review paradigm through the elimination of the efficiencies defence, which had prohibited the Competition Tribunal from issuing an order against a merger likely to bring about gains in efficiencies that were greater than, and offset, the resulting anti-competitive effects, where such efficiencies would be lost in the event of a Tribunal order. While the defence was fairly narrow in its application, and was relied upon only in relatively few transactions, it faced vocal criticism from the Bureau and it was not expected to survive the current push for Competition Act reform.

The Competition Act is now silent on the role of efficiencies in merger review, and the approach that the Bureau and the Tribunal will take to considering efficiencies is unclear. However, in setting out the factors the Tribunal may consider in determining whether a merger will result in a substantial lessening or prevention of competition, paragraph 93(h) provides for “any other factor that is relevant to competition in a market that is or would be affected by the merger or proposed merger”. As such, while the path for efficiencies-related arguments is no longer well marked, an opening remains.

Bill C-59 will further alter the Competition Act’s substantive merger review framework, though the proposed changes will have not have as explicit implications as the removal of the efficiencies defence:

  • Structural Presumptions: Currently subsection 92(2) provides that the Tribunal cannot find that a merger is likely to prevent or lessen competition substantially solely on the basis of market shares or concentration levels. Bill C-59 will repeal subsection 92(2) and add as an explicit assessment factor “any effect from the change in concentration or market share that the merger or proposed merger has brought about or is likely to bring about.” These changes will facilitate a heavier reliance by the Bureau on market share data, which may in turn encourage a more aggressive litigation posture from the Bureau in cases where the merged entity’s market share is high and notwithstanding other potential mitigating factors. However, as market share data has long been a key focus of the Bureau’s analysis and the Tribunal will still be required to find a substantial prevention or lessening of competition on a balance of probabilities (taking into account the evidence as a whole), the extent to which these changes will ultimately lead to different outcomes is uncertain.
  • Labour Considerations: Section 92(1) will be amended to explicitly recognize that the Tribunal can make an order against a merger that is likely to result in substantial lessening or prevention of competition with respect to labour markets. This change is consistent with the enhanced focus on the nexus between competition law and labour observed across jurisdictions. However, as subsection 92(1) in its current form is understood as capturing anti-competitive merger effects in any market, including labour markets, this change has limited practical legal effect. This being said, it does send an important signal to the Bureau and Competition Tribunal that Parliament expects that they will give specific consideration to labour effects arising from mergers.
  • Coordinated Effects: Currently, the non-exhaustive list of factors that the Tribunal can consider in its analysis of whether a merger is likely to result in a substantial prevention or lessening of competition does not explicitly include coordinated effects. Bill C-59 will add as a factor “any likelihood that the merger or proposed merger will or would result in express or tacit coordination between competitors in a market”. Given that the list of factors is non-exhaustive and that the Bureau’s Merger Enforcement Guidelines already recognize the possibility that it may challenge a merger on the basis of either unilateral or coordinated effects concerns, the practical implications here are likely limited. Nonetheless, this change may motivate the Bureau to give greater focus to coordinated effects, which have generally taken a backseat to unilateral effects considerations in Canadian merger reviews.
  1. Procedural Changes

Alongside some fine tuning of the merger control regime, Bill C-59 proposes three material procedural changes, all of which weigh in the Bureau’s favour:

  • Limitation Periods: Currently, a merger cannot be challenged more than one year after it has been substantially completed. Under Bill C-59, the limitation period will be extended to three years for mergers that are not notified to the Commissioner (either in connection with the mandatory pre-merger notification regime or on a voluntary basis). For notified mergers, the limitation period will remain at one year. Historically, voluntary merger notification has been very uncommon in Canada. Time will tell whether the imposition of a longer limitation period provides sufficient motivation for a material change to this trend.
  • Effective Period for Filings: Currently, merging parties have one year to complete their transactions from the date in which they submitted their notification (or, where a second request (referred to as a Supplementary Information Request or SIR) has been issued, from when they comply with the second request). However, the notification rules provide that the parties can seek an exemption from the requirement to submit a notification where they file only a substantive letter requesting an advance ruling certificate (“ARC”) and, in connection therewith, they have supplied substantially similar information as they would have supplied in a notification filing. As it currently stands, there is no limitation period associated with this grant of exemption. Bill C-59 amends the exemption requirement to provide that it is valid for one year. It is to be noted that if the Bureau ultimately issues an ARC, such ARC will continue to exempt the requirement to submit a notification irrespective of whether closing takes longer than one year from its issuance.
  • Interim Relief: Bill C-59 will enhance the Bureau’s ability to prevent closing while it reviews and/or challenges a merger. Under Bill C-59, where the Bureau applies for an interim order to enjoin closing (either under sections 100 or 104 of the Act), the merger will be prohibited from closing until the Bureau’s injunction has been heard and disposed of by the Tribunal. Effectively, the Bureau will be enabled to pause the closing of a transaction simply by filing a section 100 or 104 application. In practice, this may lead to parties being more willing to provide a timing agreement or remedy to the Bureau given the ease by which the Bureau will be able to temporarily prohibit closing.

Notably, it is arguable that this change will allow even private parties to stall a merger through the filing of a section 104 application. Specifically, Bill C-59 opens the Competition Act’s civil collaboration provision under section 90.1 to private actions and allows private parties to seek injunctive relief under section 104 in connection with such actions. While section 90.1 does not explicitly refer to mergers, its terms are broad enough to capture such agreements. As such, arguably, if a section 104 order is sought in connection with an application under section 90.1, and provided that the merger is an agreement that comes within the ambit of section 90.1 (and provided that the applicant meets the leave requirements), this will trigger the automatic closing prohibition under Bill C-59 (which would apply in the case of section 104 applications “in respect of a proposed merger”).

  1. Conclusion

Bills C-56 and C-59 largely make relatively technical changes to Canada’s merger control regime, which will remain broadly familiar once we reach the other side of the current legislative processes. However, the practical and substantive significance of these changes should not be underestimated. For merging parties, the amendments will have strategic implications across a broad range of transactions; and with more radical changes being sought by the Bureau and debated in Parliament, we could yet see even greater change to the Competition Act’s merger control regime before too long.

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competition competition law Competition Act Competition Act Amendments Merger Control