Merger Law and Practice: The Regulation of Mergers Under the Competition Act

Neil Campbell, S.J.D., M.B.A., C.M.A.

• Foreword
• Preface
• Acknowledgments
• Table of Cases

• PART I — INTRODUCTION

• A)      OVERVIEW OF THE COMPETITION ACT

1. Administration and Enforcement
2. Criminal Offences
3. Reviewable Practices
4. Special Remedies

• B)      GOALS OF CANADIAN COMPETITION POLICY

1. Key Features of the Canadian Economy
1. Small Open Economy
2. High Concentration and Foreign Ownership
3. Extensive Government Intervention
2. Economic Goals
3. Distributive Goals
4. Political Goals
5. Process Goals

• C)      OVERVIEW OF THE MERGER PROVISIONS
• D)      OVERVIEW OF THE MERGER REVIEW PROCESS

• A)      THE CRIMINAL LAW APPROACH
• B)      INSTITUTIONAL ARRANGEMENTS
• C)      CHRONOLOGY OF REFORM ATTEMPTS

1. Bill C-256 and the Stage I Amendments
2. Bill C-42
3. Bill C-13
4. Bill C-29
5. Bill C-91 and the Stage II Amendments

• D)      SCOPE OF THE MERGER REFORM PROPOSALS

1. Institutional Design
2. Substantive Provisions
3. Procedural Matters
4. Remedial Options

• E)      FUTURE REFORMS

• PART II — THE SUBSTANTIVE PROVISIONS

• A)      THE STATUTORY DEFINITION

1. Parties to a Merger
2. Modes of Acquisition
3. Acquired Business
4. Necessary Degree of Control
1. Corporate Shareholdings and Partnership Interests
2. Incremental Acquisitions
3. Latent Interests
4. Interlocking Directorships
5. Contractual Arrangements

• B)      EXEMPTIONS

1. Joint Ventures
2. Financial Institution Mergers

• C)      OTHER REGULATORY REGIMES

1. The Investment Canada Act
1. Reviewable Transactions
2. Interface Between the Review Processes
2. Mergers Subject to Other Regulatory Approvals
3. The Regulated Conduct Doctrine
1. Application to Federal Regulation
2. Availability in Respect of Reviewable Practices
3. Elements of the Defence

• D)      CONCLUSIONS

• A)      THE “RELEVANT MARKET” CONCEPT
• B)      METHODS OF MARKET DEFINITION

1. Overview of the Tribunal's Approach
1. Non-Merger Cases
2. Merger Consent Orders
3. Contested Merger Proceedings
2. Overview of the Director's Approach
1. Price and Response Time Parameters
2. Measurement of Selling Prices
3. Price-Inelastic Market Segments
4. Analytical Factors
3. Non-Price Competition

• C)      PRODUCT MARKETS

1. The Tribunal's Approach
2. The Director's Approach
3. Factors to be Considered
1. End Use (Functional Interchangeability)
2. Buyer Switching Costs
3. Price Relationships and Relative Price Levels
4. Views, Strategies, Behaviour and Identities of Buyers
5. Trade Views, Strategies and Behaviour
6. Sellers' Adaptation Costs
7. Physical and Technical Characteristics
8. Second Hand or Leased Products
9. Other Factors

• D)      GEOGRAPHIC MARKETS

1. The Tribunal's Approach
2. The Director's Approach
3. Factors to be Considered
1. Shipment Patterns
2. Buyer Switching Costs
3. Price Relationships and Relative Price Levels
4. Views, Strategies, Behaviour and Identities of Buyers
5. Trade Views, Strategies and Behaviour
6. Transportation and Local Set-Up Costs
7. Product Characteristics Affecting Transportability
8. Foreign Competition
9. Other Factors

• E)      CONCLUSIONS

• A)      THE PROTECTED ACTIVITY: “COMPETITION”

1. Market Power
1. Price Competition
2. Non-Price Competition
3. Cost Minimization
2. Mergers Which Facilitate the Exercise of Market Power
1. Horizontal Mergers
1. Unilateral Effects
2. Coordinated Interaction
2. Vertical Mergers
3. Conglomerate Mergers

• B)      THE PROBLEMATIC STANDARD: “LIKELY”
• C)      THE PROSCRIBED CONDUCT: “PREVENT OR LESSEN”
• D)      THE MAGNITUDE OF IMPAIRMENT: “SUBSTANTIALLY”

1. The Tribunal's Approach
2. The Director's Approach

• E)      THE EVALUATIVE CRITERIA

1. Market Shares and Concentration
1. Measurement of Market Shares
2. Calculation of Concentration Ratios
3. Safe Harbours
4. Presumptions of Anticompetitiveness
2. Foreign Competition
1. Tariffs
2. Other Impediments
3. Factors Which Facilitate Foreign Competition
3. Failing Businesses
1. Analytical Framework
2. Competitively Preferable Purchaser
3. Retrenchment
4. Liquidation
4. Substitutes
1. Acceptability
2. Availability
5. Barriers to Entry
1. The Nature of Entry
2. Types of Barriers
1. Cost Advantages
2. Sunk Costs
3. The Likelihood That Entry Will Occur
1. Probabilistic Standard
2. Identity of Likely Entrants
3. Relevance of Past Entry and Exit
4. Barrier-Increasing Mergers
6. Effective Remaining Competition
1. Relationship to Other Evaluative Criteria
2. Effectiveness
7. Removal of a Vigorous Competitor
8. Change and Innovation
1. Innovation
2. Other Types of Change
9. Other Relevant Factors
1. Potential for Collusion
2. Concentration Trends
3. Anticompetitive Conduct and Intent
4. Excess Industry Capacity
5. Countervailing Buying Power
6. Transaction Size and Market Size
7. Regulated Conduct
8. Vertical Integration
9. Efficiencies

• F)      CONCLUSIONS

• A)      DEFINITION OF EFFICIENCY

1. Allocative Efficiencies
2. Productive Efficiencies
3. Dynamic Efficiencies
4. Export Enhancement and Import Substitution

• B)      BURDEN OF PROOF
• C)      INELIGIBLE EFFICIENCY GAINS

1. Redistributive Gains
2. Gains Otherwise Attainable
1. The Order
2. Alternatives For Achieving Gains

• D)      TRADE-OFF ANALYSIS

1. Measurement of Efficiency Gains
2. Measurement of Anticompetitive Effects
1. Relevant Anticompetitive Effects
2. Measurement Issues
3. The Balancing Process
1. The “Greater Than and Offset” Standard
2. Time Horizon
3. Timing Differences

• E)      CONCLUSIONS

• PART III — THE COMPETITION BUREAU REVIEW PROCESS

• A)      PRE-REVIEW PREPARATIONS

1. Contractual Arrangements
2. Exchanges of Confidential Information
3. Experts

• B)      INITIATION OF A REVIEW

1. Voluntary Disclosure
2. Investment Canada References
3. Scanning by Bureau Staff
4. Informal Complaints
5. Requests for Formal Inquiries
1. Ministerial Requests
2. Six-Resident Requests

• C)      PRELIMINARY REVIEWS

1. Closing the File
2. Proceeding with an Examination
3. Opening a Formal Inquiry

• D)      CONCLUSIONS

• A)      NOTIFIABLE TRANSACTIONS

1. The Operating Business Requirement
2. Size Thresholds
1. Combined Party Size
2. Transaction Size
3. Measurement of Assets and Revenues
3. Exemptions
1. Affiliates
2. Advance Ruling Certificates
3. Transactions Certified by the Minister of Finance
4. Asset Purchases
5. Share Acquisitions
6. Amalgamations
7. Combinations
8. Other Exemptions

• B)      THE NOTIFICATION PROCESS

1. Parties to a Prenotifiable Transaction
1. Notifying Parties
2. Non-Notifying Parties
3. Submission of Information on Behalf of Others
2. Short-Form and Long-Form Filings
3. Waiting Periods
1. Short-Form Filings
2. Long-Form Filings
3. Commencement
4. Waivers
5. Extensions
4. Duration of a Notification

• C)      INFORMATION REQUIREMENTS

1. General Information
2. Party-Specific Information
3. Optional Information
4. Omission of Required Information
1. Unavailable Information
2. Irrelevant Information
3. Privileged Information
5. Confidentiality of Filings

• D)      SANCTIONS FOR NON-COMPLIANCE

1. Criminal Proceedings
2. Injunctive Relief
3. Indirect Remedies

• E)      CONCLUSIONS

• A)      EXAMINATIONS

1. Information Gathering
1. Merging Parties
2. Third Parties
2. Use of Experts
3. Interim Progress Reports
4. Discontinuance

• B)      FORMAL INQUIRIES

1. Information Gathering
1. Powers to Compel Disclosure
1. Issuance of an Order
2. Compellability and Self-Incrimination
3. Who May Attend an Examination
2. Search and Seizure Powers
1. Issuance of a Warrant
2. Computer Systems
3. Seizures
3. Obstruction of Justice
2. Use of Experts
3. Interim Progress Reports
4. Discontinuance

• C)      CONFIDENTIALITY

1. Scope of Statutory Protection
2. Exceptions
1. Information Which Has Become Public
2. Canadian Law Enforcement Agencies
3. Administration and Enforcement of the Act
3. Access to Information Act
4. Private Actions
5. Communications with Foreign Agencies
1. Formal Communications
2. Informal Communications
6. Inquiries
7. Common Law
8. Negotiations with the Director
1. Assurances of Confidentiality
2. Waivers of Confidentiality

• D)      INTERIM UNDERTAKINGS

1. No Close Commitments
2. Hold Separate Arrangements
1. Circumstances Where Used
2. Structure

• E)      TIMING

1. Initial Response
1. Mandatory Prenotifications
2. Voluntary Disclosures
3. Investment Canada Act References
2. Length of Investigations
3. Limitation Period

• F)      COMPLETION OF THE INVESTIGATION

1. The Assessment Memorandum
2. Meeting with the Director

• G)      JUDICIAL REVIEW OF THE DIRECTOR'S ACTIVITIES

1. Jurisdiction and Standing
2. Procedural Fairness

• H)      CONCLUSIONS

• A)      ADVANCE RULING CERTIFICATES

1. Statutory Provisions
2. Circumstances Where Utilized
1. Statutory Discretion
2. Factors Considered in the Exercise of Discretion
3. Procedural Aspects
1. Application Process
2. Revocation of an ARC
3. Timing
4. Confidentiality
4. Conditional ARCs
5. Time Limit for Completing Transaction
6. Frequency of Use
7. Cases

• B)      FAVOURABLE ADVISORY OPINIONS

1. Statutory Provisions
2. Circumstances Where Utilized
3. Procedural Aspects
1. Application Process
2. Revocation of an Advisory Opinion
3. Timing
4. Confidentiality
4. Precedential Value of Prior Opinions
5. Frequency of Use
6. Cases

• C)      CLOSING THE FILE

1. Statutory Provisions
2. Circumstances Where Utilized
3. Procedural Aspects
4. Frequency of Use
5. Cases

• D)      ADVISORY OPINIONS WITH MONITORING

1. Statutory Provisions
2. Circumstances Where Utilized
3. Procedural Aspects
1. Nature of the Monitoring
1. Market Conditions
2. The Merging Parties' Activities
2. Time Limit
4. Disposition Upon Completion of Monitoring
5. Frequency of Use
6. Cases

• E)      ADVISORY OPINIONS BASED ON PRE-CLOSING RESTRUCTURING

1. Statutory Provisions
2. Circumstances Where Utilized
3. Procedural Aspects
1. Settlement Discussions
2. Monitoring Clauses
4. Frequency of Use
5. Cases

• F)      ADVISORY OPINIONS BASED ON POST-CLOSING UNDERTAKINGS

1. Statutory Provisions
2. Circumstances Where Utilized
3. Procedural Aspects
1. Publication of Undertakings
2. Monitoring
3. Enforcement
1. Action for Breach of Contract
2. Latent Consent Orders
3. Challenging the Original Transaction
4. Types of Undertakings
1. Divestitures
2. Behavioural Undertakings
5. Frequency of Use
6. Cases

• G)      CONSENT ORDER APPLICATIONS

1. Statutory Provisions
2. Circumstances Where Utilized
3. Procedural Aspects
4. Frequency of Use
5. Cases

• H)      CONTESTED PROCEEDING APPLICATIONS

1. Statutory Provisions
2. Circumstances Where Utilized
1. Public Interest Considerations
2. Relationship to Abuse of Dominant Position
3. Procedural Aspects
4. Frequency of Use
5. Cases

• I)      CONCLUSIONS

• APPENDIX 10-A: CASE STUDIES — MONITORING
• APPENDIX 10-B: CASE STUDIES — PRE-CLOSING    RESTRUCTURING
• APPENDIX 10-C: CASE STUDIES — POST-CLOSING    UNDERTAKINGS

• PART IV — COMPETITION TRIBUNAL PROCEEDINGS

• A)      CASELOAD

1. Mergers
1. Contested Proceedings
2. Consent Proceedings
2. Other Reviewable Practices
1. Contested Proceedings
2. Consent Proceedings
3. Summary

• B)      STRUCTURE

1. Judicial Members
2. Lay Members
3. Panels
4. Independence

• C)      JURISDICTION AND POWERS

1. Jurisdiction Over Reviewable Practices
2. Superior Court Powers
1. Punishment of Contempt
2. Cost Awards
3. Questions of Law and Fact
1. Indeterminacy
2. Jurisdictional Disputes
3. Deadlock on Questions of Law
4. Interim and Interlocutory Proceedings

• D)      REVIEW OF TRIBUNAL DECISIONS

1. Appeals
1. Scope of Appeal Rights
2. Powers of Appellate Court
3. Standard of Review
1. Final Orders
2. Interim and Interlocutory Orders
2. Judicial Review

• E)      CONCLUSIONS

• A)      TYPES OF INTERIM ORDERS

1. Common Characteristics
2. Distinguishing Characteristics
3. Procedural Aspects
4. Frequency of Use

• B)      TIME-LIMITED MERGER ORDERS

1. Failure to Prenotify
1. Grounds for Issuance
2. Duration
2. Impairment of an Effective Remedy
1. Grounds for Issuance
2. Duration

• C)      INJUNCTIONS

1. Grounds for Issuance
2. Duration
3. Contested Injunctions
4. Consent Injunctions
1. Contested Proceedings
2. Consent Proceedings

• D)      NATURE OF INTERIM RELIEF

1. No Close Orders
2. Hold Separate Orders
1. Availability
2. Scope

• E)      CONCLUSIONS

• A)      PLEADINGS

1. Extensions of Time
2. Amendments
3. Motions to Strike

• B)      INTERVENORS

1. Intervention As Of Right
2. Intervention With Leave
1. The Threshold Requirement
2. The Discretion to Grant Leave
3. Application Process
3. Participation Rights
1. Discovery
2. Introducing Evidence
3. Cross-Examination
4. Scope of Representations
4. Appointment of Amicus Curiae

• C)      DISCOVERY

1. Documentary Discovery
1. Affidavit of Documents
2. Discovery of Non-Parties
3. Use of Documents for Other Purposes
2. Examinations for Discovery
3. Privilege Claims
1. Solicitor-Client Privilege
2. Litigation Privilege
3. Settlement Privilege
4. Public Interest Privilege
5. Crown Privilege
4. Confidentiality Claims

• D)      PROTECTIVE ORDERS

1. Standing
2. Issuance of a Protective Order
1. Criteria
2. Consent Protective Orders
3. Levels of Disclosure
1. Disclosure to the Director
2. Disclosure to Respondents
3. Disclosure to Intervenors
4. Other Terms
5. Confidentiality Agreements
6. Amendments

• E)      INTERLOCUTORY PROCEEDINGS

1. Motions
2. Pre-hearing Conferences
3. Schedules
1. Scheduling Orders
2. Adjournments
4. Stays of Proceedings
5. Appeals

• F)      HEARINGS

1. Split Hearings
2. In Camera Proceedings
3. Factual Evidence
1. Testimony of Witnesses
2. Subpoenas
3. Special Admissibility Rules
4. Expert Evidence
1. Pre-Filing of Affidavits
2. Nature of Expert Evidence

• G)      REMEDIAL ORDERS

1. Prohibition Orders
2. Divestiture Orders
1. Partial Divestitures
2. Terms and Conditions
3. Dissolution Orders
4. Conditional Orders
1. Types of Conditions
2. Time Limit
3. Fulfilment of Conditions
5. Discretion Not to Make a Remedial Order
6. Double Jeopardy
7. Settlements

• H)      CONCLUSIONS

• A)      TYPES OF CONSENT ORDERS

1. Consent Prohibition, Dissolution and Divestiture Orders
2. Other Consent Merger Orders
3. Conditional Consent Orders

• B)      PROCEDURAL ASPECTS

1. Consent Order Applications
1. Notice of Application
2. Draft Consent Orders
3. Impact Statements
2. Pre-hearing Management
3. Comments
4. Intervenors
1. Obtaining Intervenor Status
1. The “Directly Affected” Threshold
2. The Discretion to Grant Leave
3. Application Process
2. Participation Rights
1. Introducing Evidence
2. Scope of Representations
3. Appointment of Amicus Curiae
5. Hearings
6. Provisional Decisions

• C)      ISSUANCE OF A CONSENT ORDER

1. The Effectiveness Requirement
1. Palm Dairies
2. Asea Brown Boveri
3. Air Canada
4. Imperial Oil
5. Non-Merger Cases
6. The Current Position
2. The Enforceability Requirement
1. Palm Dairies
2. Asea Brown Boveri
3. Air Canada
4. Imperial Oil
5. Non-Merger Cases
6. The Current Position

• D)      CONCLUSIONS

• A)      CONTESTED VARIATIONS

1. Standing
2. Jurisdiction: The Change in Circumstances Requirement
1. Circumstances Which Led to the Original Order
2. Evaluation of the Order in Current Circumstances
3. Discretion to Issue a Variation Order
4. Scope of Variation Powers
5. Procedural Aspects

• B)      VARIATIONS ON CONSENT

1. Standing and Jurisdiction
2. Discretion to Issue a Variation Order
3. Procedural Aspects

• C)      CONCLUSIONS

• PART V — FUTURE DEVELOPMENT OF THE SYSTEM

• A)      CRITERIA FOR EVALUATION OF A MERGER REVIEW SYSTEM
• B)      APPRAISAL OF THE CURRENT SYSTEM

1. Strengths
2. Weaknesses

• C)      INSTITUTIONAL DESIGN

1. Enforcement
1. External Supervision
1. The Competition Tribunal
2. The Courts
3. The Executive and Legislative Branches
4. Summary
2. Private Rights of Action
3. A Disclosure-Oriented Approach
1. Guidelines and Other General Disclosures
2. Case-Specific Dislcosures
3. Barriers to Disclosure
2. Adjudication
1. The Court-Like Approach
2. The Administrative Tribunal Approach

• D)      COMPETITION BUREAU REVIEWS

1. Enforcement Errors
2. Respect for Tribunal Decisions
3. Time Limits
4. Updating of Enforcement Guidelines
5. Preliminary Reviews
1. Case Screening Criteria
2. Disclosure of File Closures
6. Prenotifications and ARC Requests
1. Notice and Comment Period
2. Announcement of Dispositions
7. Disposition of Completed Investigations
1. Case Disposition Criteria
2. Reasons for Decision in Contentious Cases
3. Monitoring Programs
4. Post-Closing Restructurings
8. Economic Studies
1. Statistical Studies
2. Case Studies

• E)      COMPETITION TRIBUNAL PROCEEDINGS

1. Expert Adjudication
1. Tribunal Membership
2. Questions of Law
3. Panel Composition
2. Streamlining of Proceedings
1. Time Limits
2. Case Management
3. Intervenors
4. Discoveries
5. Pre-Filing of Evidence
3. Consent Orders
4. Development of Jurisprudence
1. Precedents
2. Obiter Dicta
5. Appeals
1. Appeals to the Federal Court
1. Narrowing the Grounds for Appeal
2. Interlocutory Appeals
2. Cabinet Appeals

• F)      PARLIAMENTARY OVERSIGHT OF MERGER POLICY

1. The Director's Annual Reports
2. Legislative Committee Reviews

• G)      CONCLUDING OBSERVATIONS

• APPENDICES
• APPENDIX A —Competition Act
• APPENDIX B —Notifiable Transactions Regulations
• APPENDIX C —Competition Act Tribunal
• APPENDIX D —Competition Tribunal Rules
• APPENDIX E —Director of Investigation and Research, Merger Enforcement Guidelines (1991)
• APPENDIX F —Director of Investigation and Research, Information Bulletin #2, Advance Ruling Certificates (1988)
• APPENDIX G —Director of Investigation and Research, Information Bulletin #3 — Program of Compliance (1993 Revised Version)
• APPENDIX H —Bureau of Competition Policy, Communication of Confidential Information Under the Competition Act (May 1995)
• APPENDIX I —Short-Form Pre-Notification Form
• APPENDIX J —Long-Form Pre-Notification Form
• APPENDIX K —1995 Canada — U.S. Memorandum of Understanding
• APPENDIX L —OECD, Revised Recommendation of the Council Concerning Co-operation Between Member Countries on Anticompetition Practices Affecting International Trade (Paris: C(95)130/FINAL, July 1995)

• Index