Competition lawyers are not surprisingly welcoming the return of the strategic merger, as evidenced by such combinations as the $12.4-billion Loblaws and Shoppers Drug Mart deal, the $12-billion Burger King and Tim Hortons merger, the $5.8-billion arrangement between Sobeys and Safeway, and the host of tax-inversion transactions in the pharmaceutical industry.
“The return of the strategic merger has made competition practice a lot more interesting,” says Dany Assaf of Torys LLP. “Companies were waiting for the right time, and it looks like the right time has come.”
In assessing the future of merger reviews, a key development is the approach of the current competition commissioner, John Pecman, who took the job in June 2013. “As part of the commissioner’s desire to increase transparency in merger review, the Competition Bureau has published position statements explaining the bureau’s approach to complex mergers,” says Chris Hersh of Cassels Brock & Blackwell LLP’s Toronto office.
“These statements provide very careful insight into the bureau’s analysis of the competitive dynamics of an industry.”
From a practical perspective, the Loblaws and Shoppers Drug Mart combination has been particularly instructive. “In addition to having to divest stores and pharmacy operations, a novel feature of the deal was that the bureau required Loblaws to enter into certain arrangements with its suppliers on a go-forward basis,” says Hersh.
“This is the first time that remedies of this nature have been imposed in a retail merger and it may signal that the bureau will be focusing on the supply-side impact in certain industries.”
At the same time the bureau imposed those conditions, however, it indicated it was investigating Loblaws’ “preferred supplier” arrangements under the Competition Act’s civil provisions.
“The message is that information provided to the bureau in the context of merger review may prompt investigation of conduct under other provisions of the legislation,” says Hersh.
Also in the offing is the Supreme Court of Canada’s decision in Tervita Corp. v. Commissioner of Competition, a case argued in March 2014 and currently on reserve. The case considerably broadens the prospect of competition risk in corporate and commercial transactions.
Tervita originates with a Competition Tribunal decision in May 2012 that ordered CCS Corp. (now Tervita), the purchaser of a company that owned a proposed B.C. landfill site, to divest itself of the property on the grounds that the transaction would lead to a substantial prevention of competition in the market for the disposal of hazardous waste in that province. The Federal Court of Appeal upheld the decision.
Because the merger price was only about $6 million, the transaction was non-notifiable. But most merger reviews that make the news involve notifiable transactions where the parties involved have assets in Canada or Canadian sales exceeding some $400 million and the target’s Canadian assets or sales exceed some $82 million.
“In addition to being the first merger challenge brought since 2005, this case is indicative of the bureau’s willingness to challenge mergers of any size, including those that do not exceed the notification threshold,” says Anita Banicevic of Davies Ward Phillips & Vineberg LLP’s Toronto office.
But some lawyers argue Tervita will have a chilling effect on smaller combinations.
“To the extent that the bureau becomes more aggressive regarding smaller transactions, the potential costs of a merger review become more relevant to the transaction,” says Micah Wood of Blake Cassels & Graydon LLP’s Toronto office.
The upshot is that Tervita invites new considerations for smaller businesses as well as larger ones.
“Although Tervita is a bit of a unique case, it serves as a useful reminder to parties that are considering non-notifiable mergers that they are still subject to the commissioner’s jurisdiction,” says Subrata Bhattacharjee of Borden Ladner Gervais LLP’s Toronto office.
According to Bhattacharjee, parties to non-notifiable mergers frequently fail to pay timely attention to antitrust issues.
“What Tervita tells us is that parties to any merger should sit down in the early stages and consider whether the proposed transaction will have any market impact,” he says.