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Merger Enforcement Guidelines
Notice: These Guidelines were issued in March 1991. A number
of changes to the Competition Act have occurred since then.
In particular, section 6.2 and section 6.5 of Part 6 of the Merger
Enforcement Guidelines no longer reflect current provisions of Part
IX of the Competition Act addressing Notifiable Transactions
and timing issues. Please refer to the Procedures Guide for
Notifiable Transactions and Advance Ruling Certificates and the Fee
and Service Standards Handbook. Readers should also note that in
light of the decision of the Federal Court of Appeal in the
Commissioner of Competition v. Superior Propane Inc., The Efficiency
Exception Part 5 of the guidelines no longer applies. In cases where
efficiencies are claimed, the Competition Bureau will apply the
principles set out in the Commissioner of Competition v. Superior
Propane Inc. and ICG Propane Inc. 2001 FCA 104.
These guidelines are issued to provide general guidance. Parties
are encouraged to enter into early contact with the Bureau to
discuss proposed transactions. The particular facts will determine
how the Bureau assesses any proposed transaction. Parties
contemplating a merger or acquisition should obtain appropriate
legal advice when contemplating a possible transaction. The final
interpretation of the Competition Act rests with the
Competition Tribunal and the Courts.
INTERPRETATION
These Guidelines supersede all previous statements made by the
Director of Investigation and Research or other officials of the
Bureau of Competition Policy, including Information Bulletin No. 1
(entitled The Merger Provisions), that may differ from anything
stated herein.
This document is intended solely to provide enforcement
guidelines. As such, it sets forth the general approach that is
taken to merger review, and is not a binding statement of how
discretion will be exercised in a particular situation. Specific
guidance regarding a specific merger may be requested from the
Bureau through its program of advisory opinions. The Guidelines are
not intended to be a substitute for the advice of merger
counsellors. They do not represent a significant change in
enforcement policy or restate the law. Final interpretation of the
law is the responsibility of the Competition Tribunal and the
courts.
For the sake of brevity the following abbreviations are used
throughout these Guidelines:
- The Act refers to the Competition Act, R.S.C. 1985,
c. C-34, as am. R.S.C. 1985, c. 27 (1st Supp.), ss.
187, 189; R.S.C. 1985, c. 19 (2nd Supp.), Part II;
R.S.C. 1985, c. 34 (3rd Supp.), s. 8; R.S.C. 1985,
c. 1 (4th Supp.), s. 11;R.S.C. 1985, c. 10
(4th Supp.), s. 18; S.C. 1990, c. 37 ss. 27-32.
- "The Department" refers to Consumer and Corporate Affairs
Canada
- "The Bureau" refers to the Bureau of Competition Policy,
Consumer and Corporate Affairs Canada.
- "The Director" refers to the Director of Investigation and
Research, of the Bureau of Competition Policy.
- "The Tribunal" refers to the Competition Tribunal.
- "The Guidelines" refers to this publication i.e. Merger
Enforcement Guidelines.
- References to sections of the Act are referred to as
"sections".
- References to parts of these Guidelines are referred to as
"parts".
Executive Summary
In Part 1, the Guidelines address the Director's enforcement
policy regarding section 91 of the Act, which sets forth the
definition of the term "merger". In general terms, section 91 deems
a "merger" to occur when direct or indirect control over, or
significant interest in, the whole or a part of a business of
another person is acquired or established. If a transaction does not
come within the scope of section 91, it will not be subject to the
merger provisions of the Act. The principal issue highlighted in
Part 1 is the interpretation of the words "significant interest".
The acquisition or establishment of a significant interest in the
whole or a part of a business of another person is considered to
occur when a person acquires or establishes the ability to
materially influence the economic behaviour of the business of a
second person; (e.g., block special or ordinary resolutions or make
decisions relating to pricing, purchasing, distribution, marketing
or investment). In general, a direct or indirect holding of less
than a 10 percent voting interest in another entity will not be
considered a significant interest.A significant interest may be
acquired or established pursuant to shareholder agreements,
management contracts and other contractual arrangements involving
incorporated or non-incorporated entities.
Part 2 deals with the Director's enforcement policy regarding the
statutory standard set forth in section 92(1) of the Act . In
general, a merger will be found to be likely to prevent or lessen
competition substantially when the parties to the merger would more
likely be in a position to exercise a materially greater degree of
market power in a substantial part of a market for two years or
more, than if the merger did not proceed in whole or in part. Market
power can be exercised unilaterally or interdependently with other
competitors. To date, most of the mergers that the Director has
concluded would likely have prevented or lessened competition
substantially have raised concerns about the ability of the merging
parties to unilaterally exercise market power. However, the
Guidelines indicate that a merger can also facilitate the ability of
two or more competitors to exercise market power interdependently,
through an explicit agreement or arrangement, or through other forms
of behaviour that permit firms implicitly to coordinate their
conduct. In the assessment of the extent to which market power will
likely be acquired or entrenched as a result of a merger, the focus
is primarily upon the price dimension of competition. Nevertheless,
competition can be substantially prevented or lessened with respect
to service, quality, variety, advertising or innovation, where
rivalry in the market in respect of these dimensions of competition
is important.
Part 3 of the Guidelines outlines the conceptual framework that
underlies the approach taken to market definition, and describes the
various factual criteria that are typically assessed in the
case-by-case application of this framework. In general, a relevant
market is defined as the smallest group of products and the smallest
geographic area in relation to which sellers could impose and
maintain a significant and nontransitory price increase above levels
that would likely exist in absence of the merger.In most contexts,
the Bureau considers a 5 percent price increase to be significant,
and a one year period to be nontransitory. However, a different
price increase or time period may be employed where the Director is
satisfied that the application of the 5 percent or one year
thresholds would not reflect market realities.
Where potential competition from new entrants or expansion by
fringe firms within the market would require significant
construction or adaptation of facilities, or overcoming significant
difficulties related to marketing and distribution, it is considered
subsequent to market definition, in the assessment of whether new
entry into the relevant market would ensure that competition would
not likely be prevented or lessened substantially.
Part 4 addresses the various evaluative criteria that are
analyzed in the determination of the likely effects of a merger on
competition in a relevant market. The first matter discussed is the
significance of information relating to market share and
concentration. Mergers generally will not be challenged on the basis
of concerns relating to the unilateral exercise of market power
where the post-merger market share of the merged entity would be
less than 35 percent. Similarly, mergers generally will not be
challenged on the basis of concerns relating to the interdependent
exercise of market power, where the share of the market accounted
for by the largest four firms in the market post-merger would be
less than 65 percent. Notwithstanding that market share of the
largest four firms may exceed 65 percent, the Director generally
will not challenge a merger on the basis of concerns relating to the
interdependent exercise of market power where the merged entity's
market share would be less than 10 percent. These thresholds merely
serve to distinguish mergers that are unlikely to have
anticompetitive consequences from mergers that require further
analysis, of various qualitative assessment criteria such as those
highlighted in section 93. No inferences regarding the likely
effects of a merger on competition are drawn from evidence that
relates solely to market share or concentration. In all cases, an
assessment of market shares and concentration is only the starting
point of the analysis.
The Guidelines then address the seven qualitative assessment
criteria specifically mentioned in section 93 of the Act, together
with two additional criteria that are often important to consider.
As is the case with high market share and concentration, the
presence of impediments to new competition that would impose on
entrants a significant cost disadvantage, irrecoverable costs, or
time delays is generally a necessary, but not sufficient
precondition to a finding that competition is likely to be prevented
or lessened substantially. In the absence of such impediments, a
significant degree of market power generally cannot be maintained.
Where future entry or expansion by fringe firms within the market
would likely occur on a sufficient scale within two years to ensure
that a material price increase could not be sustained beyond this
period in a substantial part of the relevant market, the Bureau
would likely conclude that the merger does not require enforcement
action.
Similarly, information relating to either the failing firm or the
effective remaining competition factors can be sufficient to warrant
a decision not to challenge a merger. In cases where one of the
merging parties is likely to exit the market in absence of the
merger, and there are no alternatives to this exit that would result
in a materially higher degree of competition than if the merger
proceeded, the merger will generally not be found to be likely to
contravene the Act. Likewise, where the degree of effective
remaining competition that would remain in the market is not likely
to be reduced, the merger likely will not be challenged.
At the end of Part 4, the Guidelines address vertical and
conglomerate mergers. Such transactions rarely present sufficient
grounds for enforcement action. Nonetheless, the Guidelines describe
two limited situations where a vertical transaction may prevent or
lessen competition substantially, and one circumstance where a
"conglomerate" merger may do so. In each of these three situations,
the potential anticompetitive effect of the merger is horizontal.
Please Note: This Part no longer applies. Readers should
consult the decision of the Federal Court of Appeal in the
Commissioner of Competition v. Superior Propane Inc. and ICG Propane
Inc 2001 FCA 104.[ PDF
364 KB ]
In Part 5, the Guidelines address in detail the approach taken to
the efficiency exception provisions of section 96. These provisions
become operative where a merger has been found to be likely to
substantially prevent or lessen competition. The review of
submissions relating to efficiency gains focuses primarily upon
quantifiable production related efficiency gains. However,
qualitative dynamic efficiencies can in certain circumstances also
receive significant weight. The total efficiency gains that would
not likely be attained if the merger did not proceed are balanced
against the effects of any prevention or lessening of competition
likely to be brought about by the merger. The focus of the
evaluation of the magnitude of these anticompetitive effects is upon
the part of the total loss likely to be incurred by buyers or
sellers that is not merely a transfer from one party to another but
represents a loss to the economy as a whole, attributable to the
diversion of resources to lower valued uses.
Finally, in Part 6 the Guidelines briefly address various process
related considerations such as timing, prenotification,
confidentiality, information exchanges between merging parties and
the relationship between the review processes of the Bureau and
Investment Canada.
Table of
Contents | Part 1
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