Stakeholders Consultation on Mergers

Report

2007

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Introduction

On June 12, 2007, the Competition Bureau (the “Bureau”) held a stakeholder consultation forum (the “Forum”) in Toronto. Senior officials from the Bureau’s Mergers Branch attended the Forum, along with stakeholders from various associations, corporations and the Competition Law Section of the Canadian Bar Association (CBA). The Bureau presented the Merger Review Performance Report, outlining the Mergers Branch’s performance since the last report, dated October 2004. In addition to the report, Mergers Management and staff addressed a wide range of merger-related topics and ongoing projects, giving stakeholders the opportunity to provide feedback and suggestions on specific merger review related matters.

This report summarizes the feedback received and identifies some recent initiatives from the Mergers Branch and others it intends to pursue in the near future.

Complexity Designations and Timely Reviews

Stakeholders indicated that they are very pleased with the responsiveness of the Mergers Branch in meeting not only service standards but also client timelines for non-complex cases.

A concern was raised regarding the clarity of the complexity definitions in the Fee and Service Standards Handbook (the “Handbook”). The Bureau reported that it plans to revise the Handbook to clarify several points raised by participants (this concern was previously identified by the Branch as well).

It was also noted that a 10-week service standard for complex reviews is too long. Some stakeholders advised the Bureau that clients would greatly benefit from a much shorter service standard for complex matters, even if that meant a slightly longer service standard for non-complex cases. As no substantiated rationale was offered, the Branch does not intend to revisit these non-statutory complexity timeframes at this time (which have no impact on parties’ legal right to close after the expiration of the statutory waiting period); however, the Bureau welcomes submissions as to whether there is a case for change. If the Bureau receives such submissions, the timeframes associated with the various complexity categories will be revisited.

Section 11 (Orders for oral examinations, productions and written returns)

During the course of a merger review, the Bureau may seek court orders under section 11 of the Competition Act (the “Act”) to obtain information to determine whether there are serious competition issues. Stakeholders expressed concern that these have been too broad. They would like the Bureau to hold discussions with counsel, in advance of the issuance of orders, regarding the type and amount of information required, as well as the type and number of employees on whom to focus as sources of information.

The Bureau acknowledges that, in some cases, a significant amount of information and documentation is required to enable the Bureau to complete a sufficient review of a merger. The Bureau emphasized that it is, indeed, sensitive to the associated demands placed on the merging parties, and third parties in many cases. While there may be circumstances in which a prior dialogue between the Bureau and the parties is possible, the Bureau must protect its ability to collect the relevant information and not compromise the likelihood that material responsive to the Bureau’s investigative needs will be provided; in other words, the Bureau’s willingness to discuss the scope of a Section 11 order with a target in advance will depend on the nature of the investigation and the proposed recipient of the order.

Generally, in an effort to reduce the burden on the parties (and, in particular, on third parties) as much as possible, while still maintaining its ability to responsibly discharge its statutory duty, the Bureau has, since the Forum, engaged in an informal consultation with senior members of the Competition Bar to explore whether there are modifications or new measures that can be taken, in appropriate cases, to the benefit of all. While the Bureau is open to, and continues to explore, practical suggestions as to how to accommodate the concerns of market participants and engage in broader coordination of its reviews with international counterparts, it must be recognized that the challenges associated with the section 11 process are related to some of the limiting features of the current Canadian merger review process and, in particular, its lack of correlation (from an incentive, timeframe and predictability perspective) with other jurisdictions, most notably the U.S. These can sometimes inhibit our joint efforts for effective coordination.

Technical Backgrounders

The Bureau has published several technical backgrounders since 2005 and they have been well received. Stakeholders present at the Forum requested that the Bureau continue this practice. The Bureau affirmed its commitment to continue publishing technical backgrounders, when appropriate, to further clarify its interpretation of the Act and the implementation of its mandate.

Market Contacts

There was some discussion regarding what was perceived by some stakeholders to be an increased use of market contacts to confirm the submissions of counsel for the merging parties. The Handbook states: “In most non-complex cases, a minimal amount of information is required by the Bureau to prepare a timely decision, and it is usually not necessary for Bureau staff to obtain a significant amount of information from third parties…”. The Mergers Branch clarified that making market contacts has always been important to the Bureau, and that it will continue to be the general practice. Without confirmation from the market that, among other things, the markets are correctly defined, and in the absence of some sense of the competitive dynamics at play, it would not be possible for the Bureau to say, with any confidence, whether there are likely to be substantial competitive effects. That said, there is a small category of cases where it may be possible for the Bureau to dispense with contacts; such cases are, of course, at the discretion of Bureau management and would involve considerations such as the degree to which the Bureau already has reliable and current information about the market(s) in question. It was acknowledged by the Bureau that the Handbook could be clearer in this regard. The Branch has undertaken an amendment to reflect the current practice.

The Bureau explained to stakeholders, and encouraged them to communicate to their clients, that the mere initiation of market contacts should not be interpreted as signaling that the Bureau has concerns about a transaction.

Exemptions

Over the years, the Mergers Branch has been asked by various organizations/constituencies to make exceptions and to grant exemptions from the requirement to file a merger notification and pay the applicable fees. The Act is a law of general application; accordingly, the Bureau does not support amendments that would exempt a sector from notification requirements.

The Bureau is sensitive to the fact that certain transactions trigger the requirement to notify, even though they are unlikely to raise significant competition concerns. The Bureau’s position remains that it is not the industry, but rather the specifics of a transaction, that may or may not raise issues. In an effort to share the submissions we receive with a broader audience, we invited representatives from two sectors, namely credit unions and real estate, to attend the Forum and present their views to the assembled attendees.

Representatives of the Credit Union Central of Canada (the “CUCC”), the national trade association that represents Canada’s credit unions through their provincial central organizations attended the Forum. CUCC submitted that the current flat fee system is unfair to uncomplicated mergers such as credit union mergers. Further, they argued that such a flat fee system inhibits the general restructuring of the credit union system, as it may discourage larger credit unions from merging with smaller ones. The Bureau recognizes that, because mergers of credit unions are typically effected by amalgamation (rather than asset or share acquisitions), there have been occasions where a transaction involving one party with less than $50 million in assets was required to notify. This is a consequence of the unique transaction-size threshold in the “amalgamations” section and the parties’ choice to merge by amalgamation; it has nothing to do with the fact that credit unions are merging. Nonetheless, as the Bureau sees no compelling rationale for the disjunction in the transaction-size threshold tests in general, turning on the structure of the deal, the Bureau is currently considering whether an amendment to the subsection 110(4) threshold applicable to amalgamations would be appropriate; if so, the Bureau would bring a proposal for amendment forward at the appropriate time.

At their request, the Bureau also invited REALpac to attend. REALpac is a national industry association for owners and managers of investment real estate. REALpac was of the opinion that it was unfair for its members to be required to notify and to pay a filing fee notwithstanding that the vast majority of transactions are non-complex.

From 2000 to 2006, the Mergers Branch received 209 notifications in the real estate industry and, of those, 2% were either complex or very complex. While this percentage appears low, there is no evidence from which to conclude that there is something in the nature of the real estate industry that precludes a problematic transaction. Accordingly, while we greatly appreciate that REALpac has taken the time to share its members' perspectives, and are certainly open to a continuing dialogue, at this time, the Commissioner does not believe that industry exemptions, for the real estate industry or otherwise, are consistent with the framework of the Act, or appropriate.

The topic of filing fees was discussed, focusing on whether the Bar continues to support the current flat fee system. This topic has been discussed on numerous occasions and the focus continues to be on the relative advisability and desirability of several possible fee regimes, including a fee based on the type of notification (Advance Ruling Certificate Request, Short Form or Long Form), a fee based on complexity level, and a fee based on transaction size. While, in all such previous discussions, stakeholders had unanimously supported the current fee structure as being the most predictable, fair and efficient, some disagreement was expressed at the Forum. In light of that, and while there was no consensus reached during the consultation, the Bureau welcomes submissions on this subject. The Mergers Branch will be conducting a full costing analysis of the merger review process and plans to report its findings in the fall of 2008. In addition, the Branch has solicited the views of the Canadian Bar Association(CBA), Competition Law Section, which we anticipate receiving later this year.

Conclusion

The Bureau considers stakeholder consultations a priority, in that they maintain and promote a fair, efficient, predictable and transparent merger review process. The comments outlined in this summary report are representative of those made at the Forum. While we will continue to convene such gatherings approximately every 18 months, the Bureau encourages feedback from stakeholders at any time. Should you have any comments regarding the merger review process and/or any of the above proposals, please contact: Daniel Campagna at 819-953-4297.

The Competition Bureau is an independent law enforcement agency. We contribute to the prosperity of Canadians by protecting and promoting competitive markets and enabling informed consumer choice.