Competition Bureau Appeals Tribunal Decision Allowing Labatt/Lakeport Beer Merger 

publication 

February 2011

Co-author, with Steve Szentesi, June 2007
On April 11th, the Competition Bureau announced that it was appealing the Competition Tribunal's recent refusal to block the acquisition of Lakeport Brewing Income Fund by Labatt Brewing Company. In a news release announcing its decision to appeal the Tribunal's decision, the Bureau stated that there was "an important issue at stake" in the Bureau's ability to review pending mergers and ensure that "sufficient remedies" remained available if a merger was likely to substantially prevent or lessen competition. This case is significant in that it is the first attempt by the Bureau to block a merger under relatively new injunction provisions of the Competition Act

Overview 

On February 1, Labatt and Lakeport announced a Labatt offer for all of the outstanding shares of Lakeport. Lakeport beer is a low priced alternative to other brands, while Labatt as the second largest brewer in Canada also has significant discount brewing operations. 

As part of the merger review process, the parties submitted "long form" filings with the Bureau, after which merging parties must wait for 42 days before closing a transaction. Before this period expired, the Bureau advised the parties that it would not complete its review within the 42 day period based on potentially significant competition issues. The Bureau considered Lakeport a "maverick" whose acquisition might substantially prevent or lessen competition. 

Despite this, Labatt proposed to close shortly after the waiting period ended, offering to put into place a "hold separate" arrangement to delay integration of the Lakeport business for 30 days to allow the Bureau to finish its review. The Bureau declined Labatt's proposal and applied to the Tribunal for an injunction under the Competition Act to prohibit the parties from closing. 

Competition Act Injunctions 

Section 100 of the Competition Act allows the Commissioner to apply to the Tribunal for an interim injunction to prevent the closing of a merger when the Bureau has not yet completed its review. To obtain an injunction, the Commissioner must show that she is "on inquiry" and requires more time to complete her review of the transaction. Further, must demonstrate that failure to prevent a merging party from taking "action" would substantially impair the Tribunal's ability to remedy the anti-competitive effects of a merger because the action would be difficult to reverse. 

In seeking the injunction, the Commissioner argued that as the Act gives the Tribunal fewer remedies when a merger has been completed and that allowing the transaction to close would impede its ability to order an appropriate post-closing remedy. The Commissioner also argued that if the merger completed, the assets would be irretrievably integrated, i.e. the eggs could not be "unscrambled". 

Labatt and Lakeport argued that there was no evidence that the merger would affect the Tribunal's ability to order dissolution or divestiture following the merger, particularly given that the parties offered to keep Lakeport's assets separate for 30 days. 

Tribunal Decision 

The Tribunal dismissed the Commissioner's application finding that she had failed to provide sufficient evidence to meet the requirements for an injunction to block the merger. The Tribunal also did not find it necessary to order the parties to enter a hold separate arrangement and, in fact, that the Tribunal lacked jurisdiction to do so. The parties closed the transaction with no restriction on integrating their businesses. 

Impacts on Future Mergers 

The Tribunal's decision is the first time it has considered these relatively new injunction provisions under the Competition Act and may have a number of impacts on future mergers in Canada. 

The Tribunal's decision may make it more difficult for the Commissioner to block mergers based on the relatively high threshold required to obtain an injunction. Accordingly, merging parties may be less inclined to negotiate "hold separate" arrangements pending completion of the Bureau's review of a merger and may be more willing to close transactions once the statutory waiting period has ended. Also, the Bureau may not always have the benefit of its fully allotted period, to review transactions. 

It is interesting to note is that while conventional thinking has been that imposing an effective post-merger remedy may be more difficult after the parties have combined their assets, this may no longer be the significant deterrent once believed. The Tribunal has reiterated that the Act both permits post-merger remedies and that it can impose them. The final implications of this important decision on merger remedies in Canada remain to be seen.