Certain merger notification thresholds under Canada's Competition Act and foreign investment review thresholds under the Investment Canada Act (ICA) are updated on a yearly basis.
On January 31, 2019, the Federal Government announced an increased pre-merger notification "transaction-size" threshold under the Competition Act. Various pre-merger review thresholds under the ICA have also increased as of this month and are now effective.
New Pre-Merger Notification "Transaction-size" Threshold under the Competition Act
The pre-merger notification "transaction-size" threshold for 2019, effective immediately, has increased to C$96 million, from the 2018 threshold of C$92 million. A proposed transaction generally requires notification to the Competition Bureau under the Competition Act where both of the following thresholds are exceeded:
- Party-size threshold: The parties to the transaction, together with their affiliates, collectively have assets in Canada, or gross annual revenues from sales from or into Canada, that exceed C$400 million (this threshold remains unchanged from year to year); and,
- Transaction-size threshold: The size of the specific transaction will exceed C$96 million. In the case of asset or share transactions, this would mean that either the value of the assets in Canada of the target, or the annual gross revenues from sales in or from Canada generated from those assets, exceed C$96 million.
Additionally, in order for pre-merger notification to be triggered with respect to voting share transactions, the percentage of voting shares held by the entity acquiring the shares would have to rise as a result of the transaction above 20 per cent of the total outstanding voting shares of a public corporation, or above 35 per cent in the case of a private corporation. If the entity acquiring the shares already owns shares in excess of 20 or 35 per cent (depending on the type of transaction), the transaction would have to result in the entity owning more than 50 per cent of the total outstanding voting shares of the corporation acquired.
Pre-Merger Review Thresholds for Direct Investments under the Investment Canada Act
The threshold for pre-merger reviews under the ICA for direct investments involving Canadian (non-cultural) businesses by investors from World Trade Organization (WTO) members (non state-owned), has increased to C$1.045 billion effective January 1, 2019, increasing from the previous C$1 billion threshold.
For direct investments involving Canadian (non-cultural) businesses by investors from the European Union, Australia, Chile, Colombia, Honduras, Japan, Mexico, New Zealand, Panama, Peru, Singapore, South Korea, the United States or Vietnam, the threshold for pre-merger reviews under the ICA has increased to C$1.568 billion effective January 1, 2019, increasing from the previous C$1.5 billion threshold. As soon as Brunei and Malaysia implement the "Comprehensive and Progressive Agreement for Trans-Pacific Partnership", this threshold will also apply to investors from those countries.
The threshold for pre-merger ICA reviews for direct investments involving Canadian (non-cultural) businesses by state-owned enterprises which are controlled in WTO member states has increased to C$416 million from C$398 million in 2018. This threshold is based on the "book value" of the Canadian business' assets.
The existing (book value) threshold of C$5 million for direct investments and C$50 million for indirect investments will continue to apply to investments by non-Canadians that relate to Canadian cultural businesses1, or where none of the parties are from a country that is a WTO member.
If the applicable threshold for a pre-merger ICA review is not exceeded, the acquisition of control of any Canadian business by a non-Canadian entity remains only subject to a post-closing reporting obligation (notification).
Footnote
1 A "cultural business" is defined by the ICA as a business that that carries on activities in the book, magazine, periodical or newspaper industries, film/video/TV, music, or radio broadcasting industries.
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