Merger developments at the Competition Bureau - International Law Office

Updated merger guidance documents
Merger handbook
Procedures guide and merger policy
Consultations on the Merger Enforcement Guidelines

It has been a busy autumn for the Competition Bureau on the mergers front. The bureau has announced plans to consult stakeholders on the need to revise its merger analysis framework and updated its merger-related fee and service standards policy to reflect major changes to the Competition Act adopted in 2009. These developments will bring about significant changes in the administrative timing of merger reviews in Canada and once again reflect the commissioner of competition's commitment to transparency in the bureau's enforcement approach.

Updated merger guidance documents

On October 22 2010 the bureau announced new service standard periods and complexity designations in its revised Fees and Service Standards Handbook for Mergers and Merger-Related Matters. In conjunction with the release of the merger handbook, the bureau also issued an updated Fees and Service Standards Policy for Mergers and Merger-Related Matters and a Procedures Guide for Notifiable Transactions and Advance Ruling Certificates under the Competition Act, which contain more technical changes aimed at ensuring that the bureau's merger review process is in line with the amended merger provisions. Each of these updated policies took effect on November 1 2010.

The 2009 amendments to the Competition Act created a single pre-merger notification form with a single initial statutory waiting period of 30 days, eliminating the previous 'short-form' and 'long-form' notification forms with their respective 14-day and 42-day waiting periods. The amendments also empowered the commissioner to issue a supplementary information request during the initial 30-day period when she believes that more information is required in order to complete her review of a merger. On the issuance of a supplementary information request, the parties are precluded from completing their transaction until a further 30 days after all responses to the supplementary information request have been submitted. This process was designed to bring Canada's merger review system further into line with that of the United States, with its 30-day initial waiting period subject to the issuance of a 'second request'.

Despite the existence of a statutory waiting period for notifiable transactions, the bureau does not always complete its reviews within this period. In 1997 the bureau developed non-binding 'service standards' to provide guidance to merging parties as to the maximum time period within which it would complete a review. These periods varied with the complexity level of the transaction, as determined by the bureau:

• 'non-complex' transactions were reviewed within a maximum of 14 days;
• 'complex' transactions were reviewed within 10 weeks; and
• 'very complex' transactions were reviewed within five months.

Merger handbook

The new merger handbook reduces the possible classifications of transactions to two - non-complex or complex - with respective service standards of 14 days and 45 days. That is, the service standard for complex transactions is much shorter than previously. In cases where a supplementary information request is issued, the service standard will not be 45 days, but rather will end 30 days from the date on which all responses to the supplementary information request have been received by the bureau. As such, that service standard will exactly correspond to the statutory waiting period provided for in the Competition Act. Parties are legally entitled to complete their transactions on the expiry of the statutory waiting period, regardless of the status of the service standard period.

The merger handbook also provides more guidance on how mergers will be classified by the bureau. Generally speaking, transactions that result in a combined market share of 10% or less will be classified as 'non-complex' and transactions with combined shares of more than 35% will be classified as 'complex'. Transactions with combined shares of between 10% and 35% will be classified as 'non-complex' or 'complex', depending on a number of factors, including:

• the barriers to entry;
• the number and effectiveness of remaining competitors;
• the existence of credible complaints or competitive concerns;
• the incremental increase in post-merger market share; and
• the challenges in defining the relevant product and geographic markets.

The merger handbook also outlines the type of information that the bureau will consider sufficient to commence the service standard. Supplying this information at the time that a notification or request for an advance ruling certificate is submitted will allow the bureau to start both the waiting period and the service standard concurrently, and generally will result in fewer or more focused subsequent information requests. One new element introduced in the merger handbook is that the service standard for advance ruling certificate requests will now start on the day on which sufficient information is received to classify the transaction, rather than the day after. This brings it into line with the treatment of pre-merger notifications.

Procedures guide and merger policy

The procedures guide, which deals with how to determine whether a transaction is notifiable, the differences between a notification and an advance ruling certificate, and filing procedures, adopts a new position on the timing of filings submitted electronically. Previously, the bureau considered any filing made electronically before midnight to have been received that day; after November 1 2010, any filing received after 5:00pm will be deemed to have been received the following business day.

The merger policy confirms that filing fees for pre-merger notifications and written advisory opinions remain unchanged at C$50,000. In addition, the merger policy clarifies the bureau's position regarding the payment of filing fees where notifications are withdrawn and resubmitted (so-called 'pull and refile'). This is generally done to provide the bureau with additional time to complete its review by restarting the waiting period and avoiding the issuance of a supplementary information request. The merger policy provides that where certain limited conditions are met, no additional filing fee will be required when a notification is pulled and refiled.

In a conference call with stakeholders to discuss the new documents, bureau representatives made the following comments:

• Timing agreements are still possible, even with the service standards, and these will be used in complex transactions in order to avoid a supplementary information request;
• The starting dates of both the waiting period and the service standard (assuming that all information required or prescribed is provided) will be on the same day;
• Pulling and refiling is always possible, but can be done without repaying the filing fees only if the prescribed conditions are met; and
• Provision of the required information in the mergers handbook will "generally" (but not "automatically") be enough to start the service standard.

These merger guidance documents underscore the commissioner's commitment to transparency in the enforcement and application of the amended Competition Act. The consolidation of complex and very complex classifications and the shortening of the service standard for such matters is a welcome development, as it more closely tracks the statutory waiting period. Notably, over the last five years the average review period for complex matters has effectively been 44 days - one day less than the new 45-day period. With respect to transactions for which a supplementary information request has been issued, the experience so far at the bureau suggests that the review of such mergers usually extends over a period of at least four months, from the date of the initial filing.

Consultations on the Merger Enforcement Guidelines

The bureau will hold a series of roundtable consultations this autumn to gauge the need to revise its Merger Enforcement Guidelines.

The guidelines were first issued in 1991 and revised in 2004. They establish the framework used by the bureau to assess the potential competitive effects of a merger. The bureau wants to determine whether the guidelines properly reflect its current practices, as well as other legal and economic developments. In addition, the bureau is seeking input on the potential implications of the recent amendments to the Horizontal Merger Guidelines used by the US antitrust agencies.

The bureau has published a discussion paper for these consultations, elaborating on the following specific areas for potential revision or clarification:

• Should the bureau move away from a reliance on market definition to a direct assessment of competitive effects?
• Should the bureau expand its discussion of significant and partial interests and interlocking directorships, unilateral and coordinated effects, characteristics that constitute a 'maverick' firm and countervailing power?
• Should the bureau consider changing the existing concentration thresholds?
• Should the bureau revisit the two-year period used in the existing guidelines to assess entry?
• Should the bureau consider addressing different kinds of entry and how it assesses evidence relating to entry?

The bureau has invited public input on these questions - and any other area of concern - by no later than December 31 2010.

For further information on this topic please contact Kevin Ackhurst at Ogilvy Renault LLP's Toronto office by telephone (+1 416 216 4000), fax (+1 416 216 3930) or email (kackhurst@ogilvyrenault.com). Alternatively, contact Denis Gascon at Ogilvy Renault LLP's Montreal office by telephone (+1 514 847 4747), fax (+1 514 286 5474) or email (dgascon@ogilvyrenault.com).