In light of recent proceedings commenced by the Commissioner of Competition, parties to purchase and sale transactions (including those that fall below the thresholds for mandatory notification) need to carefully consider the effects of their proposed transaction on competition.
In January of last year, the Commissioner of Competition applied to the Competition Tribunal for an order dissolving (unwinding) CCS Corporation's (CCS) purchase of Complete Environmental Inc. (Complete), the sole shareholder of Babkirk Land Services Inc. (BLS).
BLS had obtained regulatory approval to construct and operate a secure hazardous waste landfill on lands it owned near Wonowon (located at mile 101 of the Alaska Highway) in north-eastern, British Columbia. Once constructed, the BLS landfill would have earned its revenue from receiving waste produced at the oil and gas fields of north-eastern British Columbia. The only other two secure hazardous waste landfills in the area were owned by CCS. Before the BLS secure landfill was constructed and put into commercial production, CCS purchased the shares of Complete for $6.1 million thereby acquiring its wholly owned subsidiary BLS.
While it is not entirely clear from the materials filed with the Competition Tribunal, it appears that this transaction was brought to the attention of the Competition Bureau by a third party who complained the transaction would adversely impact competition.
In its application to the Tribunal, the Competition Bureau has taken the position that the acquisition substantially prevents competition due to the elimination of BLS as a competitor of CCS in the relevant market, and that there are significant barriers (regulatory approval and cost) to new competitors entering that market. The Bureau has alleged that CCS acquired Complete in order to maintain its monopoly in the area. In its filing, the Bureau suggests that CCS' own internal documents reveal it acquired Complete with a view to eliminating a competitor and maintaining the tipping fees at its existing facilities.
In a relatively recent motion to the Tribunal, the former shareholders of Complete (the Vendors) sought an order dismissing the application against them on the basis that dissolution (the unwinding of the transaction) would be punitive and that divestiture (a forced sale of CCS' interest in BLS) would be a sufficient remedy if the Bureau's challenge is successful. The Bureau's decision to pursue dissolution as a remedy is the only reason the Vendors are named in the proceedings. Had the Bureau limited its prayer for relief to divestiture, the Vendors would not have been dragged into the proceedings.
In its order dated November 3, 2011, the Tribunal denied the Vendors' motion and confirmed the availability of dissolution as a remedy. Whether or not the Tribunal in fact orders dissolution remains to be seen. A decision on the matter should be released in the coming weeks, at which time we will publish an update.
Some things to consider in light of the Commissioner's challenge of the CCS/Complete merger:
- It is open to the Competition Bureau to review and challenge any transaction, including those which do not meet the threshold requirements for notification. The CCS/Complete transaction did not meet the party size or value of business thresholds which would have triggered a competition filing with the Bureau.
- It appears the Commissioner is open to receiving complaints from third parties to initiate investigations and reviews. While that is not necessarily a bad thing if a complaint is legitimate and the third party's intentions sincere, the process is open to abuse. For example, competitors and others could initiate complaints in an attempt to thwart, delay or drive up the costs of a transaction.
- With its order of November 3, 2011, the Tribunal has confirmed that dissolution is an available remedy in these circumstances. This is obviously of particular concern to vendors as it requires that they return their proceeds of sale and take back their business.
- Parties to purchase and sale transactions, regardless of size, need to carefully consider the effects of their proposed transaction on competition in their relevant market. In smaller transactions (not subject to notification) that do raise significant competition concerns, the parties should consider treating the transaction as though it triggers review and apply to the Bureau for a "no action letter" or an Advanced Ruling Certificate. The cost of such filings will be considerably less than the cost of defending a challenge and, if necessary, unwinding a transaction.
- If Bureau approval is not sought and competition concerns exist, the risks associated with competition proceedings and orders should be addressed in the purchase agreement. Given the availability of dissolution as a remedy, vendors will want to pay particular attention to such clauses.
- Purchasers should carefully consider what they put in writing regarding their motivations for pursuing a transaction. Such communication could be misconstrued in the context of a challenge by the Bureau.
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