Full package of amendments will significantly change M&A landscape in Canada
The latest and final set of changes to Canada’s competition laws will require businesses to undertake more sophisticated merger analysis before acting, as there is a more significant burden on merging parties to justify a proposed transaction, say Julie Soloway and Navin Joneja, partners at Blakes.
“These changes all combined will have big implications on companies and their compliance programs for day-to-day operations,” says Soloway, who co-chairs the Competition, Antitrust and Foreign Investment Group with Joneja, “They’ll also be front and centre when it comes to any merger transaction they might be contemplating.”
The provisions, combined with two previous rounds of amendments, which received royal assent in late June, will “significantly change” the M&A landscape in Canada.
The latest update provides the Competition Bureau with more power to take on anti-competitive deals and introduce what are called structural presumptions. The rules now contain a clause that says if a proposed merger would lead to a combined market share of more than 30 percent, the presumption is that the deal is bad for competition. Companies would have to argue against that presumption for a deal to proceed.
Joneja says this will “require a lot of background work and pre-planning” for those contemplating a merger. “One of the overall impacts of all the changes [including previous amendments already in force] is that competition law will have to be at the forefront of deal planning. The time for debating whether the rules are appropriate or not has passed, and it’s really about how to comply with them and develop the right strategies to navigate.”
The updates also expressly include examining the impact on labour, the effects of increases in market share, and any “express or tacit” coordination between competitors.
In addition, the latest rules prohibit “greenwashing”—or making a representation about the environmental benefits of a business activity or a product that is not based on a proper test or internationally recognized methodology.
There is also a new right for private parties to apply to the Competition Tribunal regarding any perceived violations of deceptive marketing and collaboration provisions. The threshold for obtaining leave from the tribunal to bring an application based on public interest or being substantially affected is now lower.
The tribunal can also award a “disgorgement remedy” to private applicants in an amount up to the benefit derived from a refusal to deal, price maintenance, exclusive dealing, market restriction, tied selling, abuse of dominance and collaboration conduct.
Other significant changes that came into effect on June 25 include:
Soloway notes that these latest changes are part of a package of amendments passed over the past two years, including two other significant provisions.
The first is the removal of the “efficiencies defence,” which had allowed mergers to proceed if the adverse anti-competitive effects of a merger were outweighed by the efficiencies it would bring.
Soloway points out that the efficiencies defence was created in the 1980s to account for the “different structure of the Canadian economy,” given its large geography and relatively small population.
“This helped some Canadian businesses thrive, even though it meant a higher market share than might be palatable in other jurisdictions, such as the United States.”
The other change that was made previously was the power of the competition Commissioner to order a market study that includes compulsory production orders for internal documents, data and testimony from participants.
“So, it was voluntary before, and now you have to participate if they launch a study,” she says, adding that the Minister of Innovation, Science, and Industry can independently order a study.
Businesses need to be prepared for the broad ramifications of these amendments,
Among the key takeaways from the entire package of competition law changes, Joneja and Soloway say firms need to be aware of the greater risk of litigation from the bureau and private parties and review their compliance policies to reflect the new legal landscape.
Companies must also review advertising materials and public disclosure to ensure any claims, especially environmental-related ones, are properly supported.
However, Joneja says that when it comes to mergers, “the test is still the same—whether or not the merger is likely to result in a substantial lessening or protection of competition.
“What has changed is that there are more transactions in which the burden is now on emerging parties to demonstrate that there wouldn’t be a lessening of competition. That means doing their homework and due diligence early.”
