Publication
1. A SIGNIFICANT SHIFT IN THE BUREAU'S APPROACH TO MERGER FILINGS
Officials from the Mergers Branch at the Competition Bureau recently signalled an important change in their approach to pre-merger short and long-form notification filings under the Competition Act, namely, that they will be seeking more long-form filings.
By way of background, parties to a transaction that is notifiable under the Competition Act can elect to file either (i) a "short-form" filing, which triggers a mandatory waiting period of 14 days before closing is possible, or (ii) a "long-form" filing which triggers a 42-day waiting period, and requires the production of considerably more information (for example, strategic documents). The long-form is typically used in situations that involve significant competitive overlap between the merging parties and/or are particularly complex in some manner.
It is important to keep in mind that the Bureau can elect at any point during a short-form review period to "bump" the filing to a long-form. This can lead to considerable delays and costs, given that, in effect, the waiting period will then include time already passed between the filing of the short-form and the bump, the time required to prepare the long-form (the new 42-day clock does not start until the long-form document is filed and certified as complete) and the new 42-day waiting period.
In recent years, an informal third way option emerged where parties could file a short-form and then, at the request of the Bureau, provide certain but limited additional information of the sort that would have been included in a long-form filing. This "short-form plus" approach was flexible, pragmatic and cost-effective for the parties to the transaction. It limited the length of the review period, avoided the bump to long-form, and yet provided the representatives of the Bureau with the information that they believed was required to assess the competitive impact of a transaction. Sometimes the parties were asked to sign an agreement with the Bureau pursuant to which they would not close prior to obtaining the approval of the Bureau. However, for the Bureau, it also meant that the statutory waiting period before closing was possible was still only 14 days.
The Bureau has now signalled that it is gradually moving away from the informal "short-form plus" approach to notifiable transactions and that, whenever it believes it needs more than the limited short-form information, it will be asking for long-forms to be filed by the parties - essentially a reverse version of the "short-form plus" approach but with the longer 42-day waiting period. However, the Bureau has also indicated that requesting long-forms to be filed would not always automatically mean that the 42-day waiting period would have to lapse before clearance could be obtained from the Bureau and it alluded to the possibility that, where only "long-form minus" are required, early termination of the 42-day statutory waiting period could be more frequent.
As a practical consequence, going forward, it seems clear that the risks of filing a short-form and getting bumped to a long-form, and the longer statutory waiting period, have increased in cases where the Bureau gets even a few complaints or sees material issues. Accordingly, to avoid the time and cost delays associated with bump ups, for any deal involving fairly significant competitive overlap or a particularly high level of complexity, it will be important to give greater weight to the option of filing a long-form at first instance, to avoid a bump. However, if so bumped, it will be important to rapidly enter into discussions with the Bureau to narrow down the scope of the long-form filing where possible.
2. TRIBUNAL RULES ON WHEN A CONSENT AGREEMENT MAY BE CHALLENGED BY THIRD PARTIES
Under the Competition Act, the Commissioner of Competition can enter into consent agreements with merging parties to resolve competition concerns that can then be "registered" with the Competition Tribunal and have the effect of an order. The negotiations leading to these agreements are confidential between the Commissioner and the merging parties, and the consent agreement is final upon registration. The current process is less transparent than the previous "consent order" process in place until 2002, in which consent orders negotiated with the Bureau had to be approved by the Tribunal in public proceedings, and there were opportunities for public or intervenor involvement and a full public record of the material grounds and facts relating to the order.
Under the current process, third parties directly affected by a registered consent agreement may apply within 60 days after registration of the agreement to have one or more terms rescinded or varied, and the Tribunal may rescind or vary the agreement only if it finds that the terms of the agreement could not have been the subject of an order by the Tribunal. There is no opportunity to make representations before the agreement is registered. This differs from the previous consent order process as well as from the Tunney Act in the U.S. which allows interested parties to file comments before approval of a consent decree.
In Burns Lake Native Development Corporation et al. v. Commissioner of Competition and West Fraser Timber Co. Ltd. et al., the Tribunal ruled on the meaning of "directly affected" under the Competition Act. The Tribunal adopted a highly restrictive approach to the term "directly affected", stating that "a third party must experience first hand a significant impact on a right which relates to competition or on a serious interest which relates to competition. The impact must be definite and concrete (i.e., not speculative or hypothetical) and must be caused by the consent agreement and not by any other agreement or obligation." In this specific case, the Tribunal held that an entity with a non-controlling commercial interest in the assets to be divested was not "directly affected" for the purpose of challenging a consent agreement.
The Tribunal also ruled that parties to a consent agreement are not required to file any evidence of a substantial lessening or prevention of competition when the agreement is registered with the Tribunal.
For parties considering entering into "registered" consent agreements with the Commissioner, Burns Lake is a reminder that those agreements are not sacrosanct -- they may be challenged by third parties after closing -- but that the bar for third party challenges has seemingly been set quite high.
3. FOREIGN INVESTMENT WATCH
Under the Investment Canada Act ("ICA"), an acquisition of a Canadian business is reviewable only where the asset value of an existing Canadian business exceeds certain monetary thresholds or where the transaction occurs in one of four specific protected sectors -- financial services, culture, transportation or uranium production. Where review is required, the Minister of Industry must be satisfied that the transaction is of "net benefit" to Canada.
Under the previous Liberal government, then federal Minister of Industry David Emerson introduced amendments to the ICA to permit the review of foreign investments that could compromise national security, regardless of the asset value of the transaction. Bill C-59 would have enabled the federal cabinet, upon the recommendation of the Minister of Industry, to review any foreign investment that, in the opinion of the federal cabinet, "could be injurious to national security." The proposed amendments did not define "national security" or provide any indication of the kind of investments (or country of origin of investments) that might trigger a national security review. Concerns were raised that the nebulous nature of the undefined term "national security", as well as the consequent uncertainty added to the foreign investment review process, could chill foreign investment.
Bill C-59 died on the Order Paper when Parliament was dissolved in November 2005. However, there have been indications that the new Conservative government is considering a broader review of the ICA, including possible reintroduction of a national security amendment. In mid-May, Conservative MP James Rajotte, the Chairman of the Industry Committee that would scrutinize any such legislation, was quoted as saying that it would be very reasonable to expect national security legislation in some form in the fall. At the end of May, however, Industry Minister Maxime Bernier announced that the Conservative government had no present intention of reviewing the ICA.
Minister Bernier has been a vocal proponent of increasing foreign investment in Canada by reducing barriers and opening markets. However, in his minority government position, it may be politically difficult for the government to embark on any substantial reform of the ICA that would liberalize foreign investment rules, particularly in light of a series of recent high profile and controversial acquisitions or proposed acquisitions of Canadian companies, including China Minmetals' ultimately abandoned acquisition of Noranda, Kinder Morgan's acquisition of Terasen and Jerry Zucker's acquisition of HBC. By way of example, NDP leader Jack Layton recently called on the government to use the ICA to block Xstrata's hostile takeover bid for Falconbridge, and Liberal MP Mark Holland, a member of the Industry Committee, won unanimous support from the committee for a non-binding motion calling on the government to delay ICA approval of Xstrata's bid until foreign regulators have ruled on an earlier friendly takeover by Inco.
In the current minority government context, it seems probable that substantial reform of the ICA will be unlikely. However, with a Minister committed to reducing barriers to foreign investment, it is likely that the government is considering more comprehensive reforms to the ICA that might proceed in a changed political environment.
4. DRAFT ANTI-MONOPOLY LAW APPROVED IN CHINA
On June 7, 2006, the Chinese government agreed in principle to an anti-monopoly law that has been in the works since 1993, the most recent draft having been completed in 2003.
Although the draft has not been made available to the public, the official newspaper China Daily has revealed that the law defines "monopoly" as a single operator controlling half or more of an industry's overall market share, or two operators holding two-thirds of total market share or three holding three-quarters. As is the case under Canadian competition law, being a monopoly is not an offence; rather, the offence is using a monopoly position to harm competition.
The new law was originally a response to public outcry over what some believe to be arbitrary charges imposed by the monopoly sectors, particularly in civil aviation and railways. Despite this, it appears that the new law will not apply to most administrative monopolies (i.e., the anti-competitive use of official power by local authorities and sector regulators to protect favoured companies) and focus instead on market-based monopolies, which would be of primary consequence to foreign investors.
The law will now be debated amongst government officials, but it is widely expected that it will be adopted prior to the 2007 expiration of the current five-year tenure of the National People's Congress, although Chinese officials have not released official timetables.
5. DEREK BURNEY JOINS OUR TEAM
Derek Burney has joined Ogilvy Renault as a Senior Strategic Advisor. Mr. Burney has played a major role in Canada's economic and political development for several decades, and will assist clients in managing domestic and international issues, as well as trade and investment policy matters.
His distinguished career includes prominent roles in both the private and public sectors. Following the successful negotiation of the Free Trade Agreement as Chief of Staff to Prime Minister Brian Mulroney from 1987-89, he served as Canada's ambassador to the United States from 1989 to 1993. After Mr. Burney transitioned to the private sector in 1993, he served as Chairman and CEO of Bell Canada International, and then President and CEO of CAE Inc. Most recently, he ran current Prime Minister Stephen Harper's transition team following the Conservative Party's election win in January.
He is the Lead Director at Shell Canada Ltd., Chairman of New Brunswick Power Corp., and a Director of CanWest Global Communications Corp. and TransCanada Pipelines Limited.
Former Prime Minister Mulroney, Mr. Burney's former boss, is a senior partner at Ogilvy Renault.
Mr. Burney's addition to our team provides an invaluable resource for our clients in understanding how best to navigate the complexities of government.
The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.
© Ogilvy Renault LLP 2006 - All Rights Reserved
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