Merger Remedies in Canada: Recent Developments 

publication 

Fall 2006 - (Lang Michener Mergers & Acquisitions Brief)

Lang Michener Mergers & Acquisitions Brief

Introduction

The Competition Bureau (the "Bureau") recently issued a draft Information Bulletin on Merger Remedies in Canada (the "Bulletin"), outlining its approach to the design and implementation of merger remedies. There have also been several significant cases reflecting the Bureau's evolving approach to merger remedies.

Merger Remedies under the Competition Act

In Canada, proceedings to challenge mergers under the Competition Act (Canada) (the "Act") can only be commenced by the Commissioner of Competition (the "Commissioner"). Where the Commissioner believes that a merger will prevent or lessen competition substantially, she may apply to the Competition Tribunal (the "Tribunal") for a remedial order. In practice, contested merger proceedings are rare and the majority of issues are resolved through negotiated settlements (i.e. consent agreements).

Merger Remedies Bulletin

The Bureau articulates a strong preference in the Bulletin for "structural" rather than "behavioural" remedies – divestiture rather than other types of remedies such as short term supply arrangements. The Bureau states that structural remedies are "usually necessary" to eliminate a substantial lessening of competition in a merger and are preferred because they are more certain, less costly and readily enforceable. The Bureau also emphasizes the quick disposition of assets with initial sale periods of three to six months, upfront remedies, no minimum divestiture price during the "trustee" period (after the initial period) and, in some cases, requiring "crown jewel" provisions – that more marketable assets be sold once the "trustee" period begins.

The Bulletin also outlines the Bureau's approach to international remedies (i.e. in transactions being reviewed by multiple competition agencies). The Bureau may rely on remedies imposed in foreign jurisdictions when assets subject to divestiture are located outside Canada and the remedy resolves Canadian competition issues. Conversely, the Bureau is more likely to formalize negotiated remedies in Canada when the matter raises Canada-specific issues, the assets to be divested are in Canada and it is critical to the enforcement of the settlement terms.

Recent Cases

Several recent cases reflect the Bureau's evolving approach to the design and implementation of merger remedies.

BBM/Nielsen

In the recent merger of BBM Canada's ("BBM") and Nielsen Media Research Limited's ("Nielsen") electronic television audience measurement ("TAM") operations, a consent agreement was entered into which required the merged entity to undergo independent audits of its processes. The audits were intended to ensure the merged entity's members benefit from quality services. In its review, the Bureau found that the creation of a standard TAM system in Canada, combining basic gathering of TAM data (with BBM and Nielsen remaining competitors in other products), would likely result in a decrease in the cost of TAM services.

This case shows that the Bureau remains willing to accept behavioural, and somewhat novel, remedies. It is also reminiscent of some U.S. joint venture cases where competitor collaborations have been permitted if clear pro-competitive results were likely to be achieved, on the condition that there were no negative effects in non-collaboration markets.

Sogides/Quebecor

In the recent merger between two French-language book publishers, Sogides Ltée. ("Sogides") and Quebecor Media Inc. ("QMI"), the parties entered into a consent agreement to eliminate information exchanges between a QMI subsidiary and a third-party competitor (Renaud-Bray), in which Sogides' president was a director and shareholder. The Bureau was concerned that information exchanges between the QMI subsidiary and Renaud-Bray, through Sogides' president, could be detrimental to publishers and distributors that have supplier relationships with the two entities. The consent agreement re¬quires Sogides' president to resign as a director of Renaud-Bray, the appointment of an independent agent to the Renaud-Bray board and contains other provisions aimed at preventing the exchange of competitively sensitive information.

This case is significant as there has not, to our knowledge, been any decided Canadian case where a mere information exchange (without more) has been found to contravene the Act. This case may also signal an increased effort by the Bureau to scrutinize the relationships of directors and officers of merging parties and to require remedies without evidence that such relationship would contravene the Act.

Maytag/Whirlpool

In the recent acquisition of Maytag Corporation ("Maytag") by Whirlpool Corporation ("Whirlpool"), the Bureau decided not to challenge the transaction despite a high post-merger market share in the relevant market. While the Bureau defined the product markets in this case as the five major home appliances, it focused on the laundry segment, where it found that the post-merger market share would exceed 35%.
This case is noteworthy in that the Bureau determined market shares on a brand rather than a manufacturing basis (i.e. based on the manufacturers' brand sales at retail, not sales of all manufactured products). The Bureau concluded that house brands could be excluded on the basis that retailers own and control their brands and make all pricing and marketing decisions. The case also confirms that a high post-merger market share alone is insufficient to find that a merger prevents or lessens competition substantially when other factors are present to constrain the exercise of market power (relevant factors included low barriers to entry and retailers with countervailing power).

Conclusion

The Bureau's standardization of its practices achieved by consent agreements may give merging parties greater guidance in devising merger remedies. However, a conflict may arise between the Bureau's desire for ease of administration and fashioning an appropriate remedy in a given set of circumstances. Merging parties likely will prefer remedies consistent with the Bureau's obligation to ensure there is no substantial lessening of competition, rather than simply relying on administrative guidance.

Having said that, the recent BBM/Nielsen and Sogides/Quebecor cases show that the Bureau may continue to consider (or require) behavioural or novel remedies in certain cases. In addition, the Maytag/Whirlpool case indicates that the Bureau may decide not to challenge a transaction where, despite a high market share, it can be shown that the exercise of market power would not be possible.