The inside track on Canadian merger approval

Jeanne Pratt, senior deputy commissioner at the Competition Bureau of Canada, discusses its priorities for 2016

The Competition Bureau of Canada has had an eventful year, as M&A deal flows and value – particularly on the western side of the Atlantic – soared to record levels.

As well as continuing its close work with the International Competition Network (ICN), the Bureau has this year undergone an internal restructuring to maximise productivity and remain fully reactive to market events.

Here Jeanne Pratt, senior deputy commissioner of the mergers and monopolistic practices branch at the Bureau, explains the reasoning behind key high-profile case decisions, how the Bureau is looking to improve the process for all, and what it looks for in a merger application.

The Competition Bureau's work has been, and continues to be, informed by the Bureau's mandate of ensuring that Canadian businesses and consumers prosper in a competitive and innovative marketplace. The Bureau recently published both a 2015-2018 strategic vision and a 2015-2016 annual plan detailing our guiding principles and objectives which are to be an open, transparent, collaborative and effective competition agency; one that vigorously enforces the law, promotes competition to support continuing economic development and provides Canadians with the benefits of a competitive and innovative marketplace. As to how these influence the Mergers Directorate's areas of focus, our priority is to continue to review proposed transactions in an efficient manner, identify mergers that may substantially lessen or prevent competition, and effectively resolve these potential anti-competitive effects.

"We are constantly looking for ways to leverage new technologies to enhance the efficiency of document review"

In the last year, one of our internal priorities has been a Bureau-wide realignment designed to make better use of our existing resources and focus our operations along our four business lines. The goal is to make the Bureau a stronger, more flexible and more adaptive agency, one that is better situated to respond to prevailing realities. More specifically, two of our eight branches–the mergers and civil matters branches–have been united under one umbrella. We continue to build on the opportunities and synergies that come from an increasingly integrated enforcement group.

With respect to the merger review process, a recent Supreme Court of Canada decision in the Tervita matter provided jurisprudence and guidance on the framework for determining a substantial prevention of competition as well as the method for considering and weighing efficiencies.

We continue to consider the implications of the court's direction to quantify anticompetitive effects where an efficiencies defence has been asserted and strive to balance the need for additional information with limiting the impact on third parties where possible. The process of quantification is not a new priority coming out of the decision; rather, we have been focused for some time now on enhancing our ability to supplement qualitative evidence and undertake quantitative analysis internally.

The Bureau is largely reactive to market forces in terms of the mergers it reviews in a given year. In the case of Parkland's acquisition of Pioneer, the Bureau's application remains before the Competition Tribunal. Based on our analysis, this acquisition of retail gas stations by Parkland could increase the price of gasoline for consumers in certain rural markets. The Competition Tribunal granted its first partial injunction on a contested basis on this matter in June 2015. This case will remain a focus for the Mergers Directorate in the coming year.

Externally, we continue to build relationships with our international partners. This includes participation in multilateral groups such as OECD and the ICN, where we co-chair the Merger Working Group, as well as strengthening bilateral relationships with other antitrust agencies around the world with whom we cooperate on merger reviews.

Since the introduction of the indexing mechanism for the transaction size threshold amount for notifiable transactions, the annual number of merger filings has remained relatively steady over the past six years, ranging between 200 and 240, with the peak being in 2014-15.

As for the changes following the introduction of SIRs, this has created a two-stage merger review procedure with an initial 30-day waiting period during which the transaction cannot be completed unless the parties receive approval from the Bureau.

For those relatively few transactions that are complex or that raise potential competition concerns, the Bureau may issue a SIR, which triggers a second 30‑day waiting period. This starts upon receipt of complete responses to the SIR from the parties. That being said, it is important to note that SIRs are issued in only a small number of cases. In the past three complete fiscal years, the percentage of matters that involved a SIR ranged from 4.3 to 4.9%.

These changes have enhanced the predictability and efficiency of highly complex merger reviews for the Bureau. In particular, SIRs have replaced court orders (for example, under section 11 of the Competition Act) as the primary means to obtain necessary information from merging parties who are required to provide notification to the Bureau. The Bureau continues to examine and take measures to improve the SIR process.

For example, over the past couple of years, internal initiatives have led to new strategies and techniques to accelerate the review of documents. Recently, the Bureau published Guidelines for the Production of Electronically Stored Information, and released updated instructions on the production of electronic records for merging parties responding to a SIR. We are also constantly looking for ways to use new technologies to enhance the efficiency of document review and our economic analyses.

In addition, the two-stage merger review procedure continues to facilitate coordination with our American counterparts, given the similarities to their merger review procedure under the Hart-Scott-Rodino Act. The Bureau has found that increased alignment on timing enhances collaboration on reviews and, if necessary, on remedies. Of course, the realisation of such benefits depends on whether parties elect to submit filings in both jurisdictions at or around the same time.

Holcim and Lafarge were both important manufacturers of cement and related products, and had overlapping operations in the cement, ready-mix concrete, and aggregates businesses in Canada.

As part of a proposed global process, Holcim and Lafarge had offered to sell all of Holcim's Canadian operations and associated assets, and certain cement terminals in the US Great Lakes region. In light of the initial proposed remedy, the Bureau's review was focused on determining whether Holcim's assets located outside of Canada were important to the effectiveness of Holcim's Canadian business. This involved a determination of whether the assets included in the initial package offered by the parties comprised a stand-alone business with respect to the merging parties' overlapping operations. It turned out to be the case for a number of Holcim's products in Canada, including its business in relation to ready-mix concrete, aggregates, and construction services, but not with respect to cement; therefore the Bureau's analysis was concentrated on the manufacturing and supply of cement.

"Dialogue with the Bureau is more likely to reduce the scope of, or the necessity for, a SIR"

Following a review, including interviews with customers, competitors, and other industry stakeholders, the Bureau determined that Holcim was an effective and vigorous competitor for the supply of cement in Alberta and the initially proposed remedy alone would not mitigate competition concerns. This was due to the fact that Holcim's cement operations in Alberta relied extensively on cement supply from Holcim assets in the US, and the supply was unlikely to be replaced by cement from other plants in the sale package initially proposed by the parties. As such, the Bureau found that Holcim's Trident plant in Montana needed to be added to the remedy package so that a purchaser of all of Holcim's Canadian operations and assets would be an effective and viable competitor. The Bureau subsequently entered into a consent agreement with Holcim and ultimately approved the sale of this new package to CRH.

It is also noteworthy that throughout the review of this proposed transaction, we cooperated extensively with our counterparts at the US Federal Trade Commission (FTC) as well as the European Commission. As some assets being sold served both US and Canadian markets, the Bureau worked very closely with the FTC in order to achieve an effective remedy in both jurisdictions.

We certainly recognise the increase in cross-border mergers around the world. This raises some exciting opportunities with respect to cooperation with other authorities, and also underscores the need to work together towards a common goal of effective, appropriately aligned competition enforcement.

The Bureau engages in these cooperation opportunities on a number of fronts. We participate as a co-chair in the ICN's merger working group, where we discuss best practices in merger review with competition agencies from around the world. This group recently released the Practical Guide to International Enforcement Cooperation in Mergers. We also engage in a number of bilateral agreements with other agencies around the world to facilitate cooperation, including the recently signed memorandum of understanding with the Competition Commission of India and the Chinese agencies.

Finally, our review teams often work directly with those of other competition agencies when a merger is being reviewed in multiple jurisdictions. Due to the close economic ties between our countries, we work most often with US competition agencies – the Department of Justice (DoJ) and the FTC – though we also have a number of recent cases where we worked with the European Commission and other national agencies such as the Federal Economic Competition Commission of Mexico.

Given that we frequently work with our counterpart agencies in the US, we recently published Best Practices on Cooperation in Merger Investigations with the US DoJ and FTC. Based upon years of increasing collaboration in merger review, the best practices promote effective coordination among the agencies when reviewing mergers that impact both countries. It also serves to increase transparency for the business and legal communities by outlining common cooperation practices, as well as providing guidance on how they can work with agencies to further enhance the coordination of merger reviews.

SIRs are used to getting additional relevant information from the merging parties. The Bureau issues them for transactions that are complex in nature or that raise competition concerns.

The questions contained in the Bureau's SIRs are tailored to obtain the necessary information to analyse outstanding competition issues. However, both pre- and post-issuance dialogue are used to refine the SIR and may assist in reducing its scope, though neither is intended to serve as a forum for debate or negotiations on the merits of the case or the relevance of particular information requests.

With respect to ways in which the merging parties may minimise the costs of responding to a SIR, pre-issuance dialogue between the review team and the parties helps the former understand what information is kept, how it is kept and by whom. Therefore it may be appropriate to limit certain specifications to particular categories of employees with responsive information. It is ultimately within the Bureau's discretion to amend a draft SIR as it considers appropriate, but it will give due consideration to all comments received from parties. Post-issuance dialogue may lead to the prioritisation of certain information supplied by the party and/or the elimination of certain SIR specifications if the Bureau believes it has received enough information.

More specifically, the Bureau acknowledges that the number of custodians searched in responding to a SIR is an important determinant of the total cost and the parties are uniquely positioned to determine which individuals in its organisation will have responsive documents. As such, the Bureau does not endorse lists of proposed custodians but encourages parties to engage in discussions with the review team regarding the custodians they wish to search. Our published Merger Review Process Guidelines provide further information about the SIR process, and more specifically, what the Bureau will expect in terms of information and dialogue if the parties seek to limit the number of custodians whose records they search for the SIR.

We encourage parties to consult with the Bureau before submitting a pre-merger notification filing. This provides us with appropriate context and information on a voluntary basis and may allow us to identify, early in the review process, the issues that could require further examination. The Bureau further encourages continuing dialogue and cooperation throughout the review process. Particularly in complex reviews, dialogue with the Bureau is more likely to reduce the scope of, or the necessity for, a SIR. Similarly, if parties wish to raise an efficiencies defence or make a failing firm claim, we encourage them to engage with the review team on these issues as early as possible and provide the necessary submissions and information required to test these assertions. In all cases, the dialogue and information exchange can facilitate a more efficient and effective review process, though this is dependent on parties' willingness to engage in meaningful communication with the Bureau.

The Bureau has published a lot of guidance on its website regarding its merger review process. In addition, our Merger Notification Unit continues to be an excellent resource for questions regarding thresholds for notification and notification filings.

About the contributor
		Jeanne Pratt Senior deputy commissioner, mergers and monopolistic practices branch Competition Bureau of Canada T : +1 819 997 1231 E : Jeanne.Pratt@canada.ca W : www.competitionbureau.gc.ca Jeanne Pratt is senior deputy commissioner of the mergers and monopolistic practices branch at the Canadian Competition Bureau, overseeing the review of merger transactions and investigations related to abuse of dominance and other unilateral and joint anti-competitive conduct. Pratt has previously held management positions in the cartels directorate, and as special legal adviser to the commissioner of competition. Prior to joining the Competition Bureau in 2009, Pratt was a lawyer who practised exclusively in the area of competition law, advising clients on all aspects of Canadian competition law and related litigation.