Eyebrows raised at bureau’s merger challenge

The Competition Bureau has filed its first merger challenge since 2005 by asking the Competition Tribunal to dissolve CCS Corp.’s acquisition of Complete Environmental Inc., owner of the proposed Babkirk Secure landfill in northeastern British Columbia.

“The bureau’s action is consistent with the increased enforcement activity we’ve seen recently, most notably against the Canadian Real Estate Association and the credit card companies,” says Anita Banicevic of Davies Ward Phillips & Vineberg LLP. “But this is the first merger review in quite a while, and that’s why it’s attracting so much attention.”

The bureau maintains that the acquisition of the Babkirk site would leave CCS as the only secure landfill operator in the region. “The bureau isn’t arguing that CCS took out an existing competitor but rather that it’s unlikely that other competitors will emerge given the high entry barriers in this sector,” Banicevic says. “It’s what we call a prevent case, and prevent cases are harder to prove.”

Linda Plumpton of Torys LLP, who with colleague Jay Holsten represents CCS, told media the transaction didn’t require mandatory pre-merger filing. It appears CCS filed voluntarily and delayed closing so the bureau could complete its review.

The bureau concluded there were competition issues with the deal, but CCS disagreed and completed the merger on Jan. 7. At that point, the bureau made its application to the tribunal in its first merger review since         it attempted to block a deal between Saskatchewan Wheat Pool Inc. and James Richardson International in 2005.

What’s clear from court documents is that Melanie Aitken, the commissioner of competition, showed a willingness to negotiate, a trait that’s becoming her trademark style. On Dec. 22, 2010, before CCS shareholders had even voted on the transaction, she accepted the company’s offer to hold the Babkirk facility separate after closing until the tribunal ruled on the case.

Aitken’s alternative would have been to seek an injunction delaying closing.
“The bureau’s general policy has been not to accept hold-separate undertakings,” says Anthony Baldanza of Fasken Martineau DuMoulin LLP. “I suspect that the bureau concluded it probably couldn’t meet the test for an injunction, especially in the face of CCS’ offer to hold separate.”

Banicevic agrees that the undertaking probably obviated the need for an injunction. “But what is unusual is that the bureau didn’t require anything more formal than a written undertaking,” she says.

The case also has several other interesting features. “The bureau is seeking dissolution, rather than divestiture, as the primary remedy, and dissolution is something that has never been ordered before,” Baldanza notes.
Should the bureau succeed, the regulatory risk for deals involving competition issues will balloon.

“Buyers and sellers tend to look at post-closing competition risk very differently,” Baldanza says. “Sellers tend to be very aggressive about closing in the face of such issues, but this case is sending a message to them that simply closing doesn’t get them home clear and that they could end up having to return the proceeds and with the business back in their hands.”

The decision to challenge a transaction that didn’t attract mandatory notification is also significant. It follows several recent challenges by U.S. authorities in similar cases. “The bureau may not have selected this case simply because it wanted to deliver a message,” Baldanza says.

“On the other hand, it is probably not unhappy to demonstrate that non-notifiable mergers are still mergers and subject to the bureau’s substantive jurisdiction.”
It’s also likely CCS will raise an efficiencies defence, arguing that allowing the merger and keeping the new landfill out of the market is more efficient than letting it operate competitively.

Finally, the bureau is seeking an order forcing CCS to provide notice of proposed mergers in the future even when they’re not notifiable. Interestingly, the Competition Act doesn’t have a specific provision for such a remedy.

Arguably, the bureau’s aggressive stance may come partly from the fact that it’s not unfamiliar with CCS. The company was involved in a predatory-pricing complaint in 2010 and had an abuse-of-dominance matter resolved fairly recently.

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