Canada: Mergers Made (Marginally) Easier - Additional Guidelines For The Competition Bureau Merger Notification Issues

On March 23, 2012 the Competition Bureau released two draft Pre-Merger Notification Interpretation Guidelines for consultation.

Guideline no. 12: requirement to submit a new pre-merger notification and/or request for a proposed transaction subsequently amended

Pre-Merger Notification Interpretation Guideline Number 12: Requirement to Submit a New Pre-Merger Notification and/or Advance Ruling Certification Request Where a Proposed Transaction is Subsequently Amended addresses the question of what parties to a proposed transaction ought to do with respect to their notification or Advance Ruling Certificate ("ARC") request when their transaction has been altered in some way before clearance by the Bureau but while the Bureau's investigation is still in progress.

Frequently, merger transactions evolve and change over the course of the negotiation and finalization of deals. Sometimes these changes are minor, and other cases may be quite significant — including the addition of new parties or assets and the adoption of new structures.

Since deals often change before closing and since, in respect of transactions subject to mandatory notification, parties need to give notice well in advance of closing, there is always the risk that the transaction will change after notification. This has practical implications in two principal respects: timing and filing fees. If the deal changes so much that a new notification and/or ARC request is required, that means a new waiting period starts, potentially delaying the transaction. It also means that a new $50,000 filing fee will need to be paid.

Draft Guideline No. 12 sets out the Competition Bureau's view as to when, in the circumstances of a "changed" transaction, the parties may proceed, with the waiting period expiring based on the initial filing and/or ARC request; and when a new filing or ARC request will be required. It provides that, in the case of a formal notification, a new notification will be required when the information in the original notification is no longer correct and complete in all material respects in light of the changes to the transaction. In the case of an ARC request, a new ARC request will be required when the change to the transaction will cause the Competition Bureau to conduct a more in-depth or different analysis to provide its response to the request for the ARC. The Guideline also provides that if a new notification is required, a fresh 30 day time period will start once the notification is received. If an ARC had been requested, draft Guideline No. 12 recognizes that there is no formal timing effect since the Act does not provide a time period for the granting of an ARC.

With respect to fees, the draft Guideline establishes that if only a new notification is made another $50,000 fee will be required and a new waiting period still start. If only a new ARC request is made, a new $50,000 fee will be required. If both an ARC request and a notification had been filed, and only one of them need be changed due to changed deal terms then no new fee will be required — although a new 30 day waiting period will start. That waiting period may be shortened if the ARC is granted or the Commissioner advises that the waiting period is shortened because she has completed her review — but the parties cannot be certain of those matters until they occur.

The practical advice, therefore, especially where there is a significant possibility of a change in form but not in substance with respect to a transaction, is that it is advantageous to file just an ARC request, or an ARC request together with a notification, but not a notification alone. If a change in deal terms occurs, but the change does not require additional investigation by the Competition Bureau, no new filing fee will be required.

The Guideline contains a number of examples of changes in transactions, and the approach the Competition Bureau will take with respect to such changes, which can be examined in relation to specific circumstances. The examples are consistent with the general position noted above: formal changes to things such as parties, shareholders, assets or deal structure are likely, in the Bureau's view, to require a new notification but deal term changes that raise only new substantive competition issues are likely to require that a new ARC request be made.

Guideline no. 14: duplication arising from transactions between affiliates

Pre-Merger Notification Interpretation Guideline Number 14: Duplication Arising From Transactions Between Affiliates addresses the "party-size" or whether mandatory notification of the proposed transaction is required.

Part IX of the Competition Act requires mandatory pre-merger notification of a proposed transaction when, absent certain exemptions, (i) the parties to the proposed transaction, together with their worldwide affiliates, have assets in Canada or revenues "in, from or into" Canada exceeding C$400 million and (ii) the business assets that are the ultimate subject of the proposed transaction in Canada exceed $77 million¹ in value or the revenues generated from those assets exceed the same value. The Notifiable Transaction Regulations promulgated under the Act provide at section 4(1)(a) and section 5(2) that, in determining these amounts, any amount that represents duplication arising from transactions between affiliates shall be deducted.²

Draft Guideline Number 14 offers the following by way of Bureau policy on these matters:

Sections 6 and 7 of the Notifiable Transaction Regulations already provide that, when calculating asset and revenue values for purposes of the party-size and transaction-size thresholds, reference must be made to "audited financial statements".³ Since audited financial statements will always be in accordance with the locally-applicable Generally Accepted Accounting Principles ("GAAP") the guideline adds little. However, this arguably redundant policy prescription is helpful since it confirms that the most defensible approach to calculating asset and revenue figures for threshold-crossing purposes is to refer to the parties' (or their affiliates') financial statements prepared in accordance with applicable GAAP.

Footnotes

1 This figure, unlike the party-size threshold above, is indexed to inflation; this is the 2012 figure.

2 S.O.R/87-348, as am.

3 Ibid.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2012 McMillan LLP