The amendments were part of Bill C-10, the budget implementation act, introduced on Feb. 6.
Many of the changes were part of consultations held with various stakeholders including the CBA, however, a change to Canada’s merger review process had never been discussed, says John Bodrug, the chairman of the CBA’s National Competition Law section.
“There were sort of indications in the Conservative party platform and then the speech from the throne that the government was looking at implementing a fair number of these recommendations,” he says. “We thought that it would be appropriate to stay out ahead of the curve and kind of go on record with their merger review process.
“We put it in writing and sent that to the minister and it happened to go out earlier in the week and we didn’t know that the Competition Act amendments were going to be part of the budget bill, let alone any specific knowledge that the review process was going to be part of that too.”
The letter was sent to Ron Parker, senior assistant deputy minister policy sector with Industry Canada, on Feb. 3, and asked for a full consultation process to look at merger review changes. The amendment was part of the bill tabled three days later and will create a U.S.-style, two-stage merger review process at the discretion of the competition commissioner.
“Most competitive law experts in Canada, the U.S., and elsewhere in the world would agree that the U.S. ‘second request’ process is excessively burdensome, expensive, and time consuming,” wrote Bodrug, in the correspondence. “After 30 years it has not been adopted as a model in any other country in the world.”
When asked when he expects a response from Industry Canada about the letter, Bodrug responded, “Am I expecting a response [to my letter]? I still don’t know what is happening frankly.”
Canadian Lawyer InHouse contacted Industry Canada about the CBA letter.
“You contacted us wondering about the status of a letter sent to Ron Parker on Feb. 3rd from to the Canadian Bar Association (CBA) asking for a review of the merger acquisition process under the competition act,” wrote Industry Canada media relations officer Annie Trepanier in the e-mail. “As discussed, on Feb. 6, reforms to the Competition Act and the Investment Canada Act were introduced in the House of Commons as part of the Budget Implementation Act.
“We can confirm a letter from the Canadian Bar Association was received by Industry Canada. We will respond directly to the Canadian Bar Association on the contents of the letter.”
The U.S. second request or two-stage system was adopted in 1976 as part of the Hart-Scott-Rodino Antitrust Improvements Act. None of the several competition law experts contacted by Canadian Lawyer InHouse could recall another jurisdiction that has copied the U.S. system since its enactment more than 30 years ago.
Canada presently employs a merger review system that can take a maximum of 42 days – absent court orders or agreements. The Competition Bureau’s competition commissioner can go to the Competition Tribunal to seek a continuance if she can show that she needs more time to conduct an inquiry into the merger.
Under the new two-stage, or second request process, the initial review will take 30 days and give the commissioner of competition the power to require a second period that lasts for an additional 30 days after full compliance of a request for documents. This would mean that the commissioner for competition could delay the closing of any transaction and that there would be no judicial oversight.
“It increases the power of the bureau, it increases the discretion of the bureau,” says George Addy, partner with Davies Ward Phillips Vineberg LLP and Canada’s former competition commissioner. “The second request decreases the courts’ ability to scrutinize the exercise.”
Addy, who heads Davies’ competition and foreign investment review process and is the former chief general counsel for Telus, says in-house counsel would be wise to review what the proposed legislation.
“The thing in-house counsel will have to pay attention to is the timing implications of the second request on the transaction cycle,” he says. “I think some of them have the misimpression that the new model will create greater certainty to the approval cycle in timing and that is not the case.”
Under the second review process the competition commissioner has up to 30 days to make a second request for information. The clock does not start on the second 30 days until the request has been completed in full. Julie Soloway, partner in the competition, antitrust, and foreign investment group with Blake Cassels Graydon LLP, says the timing is where companies face millions in costs as those in the U.S. currently do.
“It could take you three months to comply with the second request,” she says. “These are massive document production orders. Massive, by the time you get the client organized, the search terms. So it could take two to three months and then once they are verified that your response to the second request is complete then the second 30-day period starts at that point.”
James Musgrove, chairman of Lang Michener LLP’s competition and marketing law section, agrees that the new system will create less certainty on when a merger will close.
“The mergers’ changes will be significant,” he says. “In the rare case that there is, I said it before and I think it will be rare, but in the rare case the second request is exercised it will be complicated and time consuming.”
Additional amendments have increased the merger notification threshold for mandatory notification from $50 million to $70 million to be adjusted annually based on gross domestic product. More transactions will be exempt from the merger notification requirement including amalgamation. The amendments will also reduce the time the competition commissioner can challenge a completed merger from three years to one year.
Because the amendments are part of the budget implementation act none of the lawyers contacted for this story believed that the changes would be subject to much debate.
“This is the most fundamental amendment to the competition act in 30 years,” Bodrug says. “In my view it should be taken as stand alone legislation and examined and considered and exposed to the full kind of committee process in itself, not sort of lumped in with such a range of other important changes as part of a confidence bill.”
Canadian Competition Act:
http://laws.justice.gc.ca/en/C-34/
Federal Budget 2009:
http://www.budget.gc.ca/2009/home-accueil-eng.asp
Hart-Scott-Rodino Antitrust Improvements Act:
http://www.ftc.gov/bc/hsr/index.shtm
U.S. Antitrust Modernization Commission:
