Change would shift burden to prove merger isn't anti-competitive for deals above certain threshold
A new approach in proposed Competition Act changes could mean longer clearance times, higher costs, and tougher stances from the Competition Bureau in merger reviews, says Peter Flynn, a partner in the competition and foreign investment group at Stikeman Elliott.
Bill C-59, the Fall Economic Statement Implementation Act, 2023, completed Senate committee consideration on June 13 and has moved on to the third reading. The bill has already passed the House of Commons. If enacted, the proposed legislation would make transactions presumably anti-competitive if they result in a 100-point increase in a concentration index – a calculation of market share known as the Herfindahl Hirschman index – and either the merging parties have a combined 30 percent market share or the transaction pushes the market-wide concentration index above 1800 points.
Flynn says the change would shift the burden from the Bureau to the merging parties to demonstrate that a merger is not anti-competitive if it is above either of the thresholds.
Currently, parties must notify the Bureau when their merger involves a target with Canadian assets or revenues exceeding $93 million or both parties' combined Canadian assets or revenues exceed $400 million. Then, there is a waiting period. The time must expire, or they must receive an affirmative clearance from the Bureau before the parties can proceed with the transaction. During the waiting period, the Bureau can challenge the transaction at the Competition Tribunal or request additional information. The Bureau’s merger enforcement guidelines state that the Commissioner of Competition will generally not challenge a merger when the merged firm would comprise less than 35 percent of the market share.
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Instead of the Bureau using its tools to challenge the merger, the proposed change requires the merging parties to “affirmatively demonstrate that their transaction will not substantially lessen or prevent competition, if it's above those thresholds,” says Flynn.
He says that if a transaction is not anti-competitive today, it will not suddenly become anti-competitive when the proposed change is enacted. If the Bureau has assessed a merger and concluded that it is not anticompetitive, in theory, that conclusion should remain intact.
However, Flynn says transactions may take longer to get through the merger review process, and the Bureau might take more aggressive stances when negotiating consent agreements or solving transactional issues.
According to the Competition Bureau’s “Overview of the merger review process,” when a transaction raises competition concerns, the bureau assesses various elements of the deal to determine whether it will “result in a substantial prevention or lessening of competition in any relevant market in Canada.” These elements include the industry’s level of economic concentration, the merging parties’ market shares, conditions of and barriers to entry into the market, and the transaction’s likely anti-competitive impact.
The Bureau said it consults with industry participants, such as suppliers, competitors, associations, customers, buying groups, and experts. If the Bureau emerges from this process with concerns about the merger, they can negotiate remedies with the involved parties or apply to the Competition Tribunal to challenge the merger.
