REVIEWING MERGERS

In the past five years, there has been a significant increase in the number of mergers the Competition Bureau has reviewed, and this continued during 2000­2001. In addition, the complexity of many of the reviews also increased due to globalization, deregulation and greater concentration in certain markets.

The Competition Tribunal delivered judgments this year on two litigated merger cases involving propane and waste. These judgments have provided a great deal of insight into a number of issues, including product market, geographic market, barriers to entry and the prevention of competition.

The Tribunal also interpreted the efficiency defence, in a decision that was before the Federal Court of Appeal at year-end. Under section 96(1) of the Competition Act, a merger that substantially injures competition can nevertheless be allowed when the efficiency gains it generates are greater than, and offset, its anti-competitive effects. This potential redemption of an otherwise anti-competitive merger is known as the efficiency defence.

Crossmedia Mergers

The year 2000­2001 was a particularly active one for the Bureau in the area of merger examination of crossmedia amalgamations. Similar activity occurred in the United States, with competition authorities paying particular attention to the AOL-Time Warner merger.

Highlighted below are the Bureau's examinations of the CanWest-Hollinger and Quebecor-Vidéotron mergers. In addition, the Bureau examined BCE Inc.'s acquisition of The Globe and Mail and related Internet properties from The Thompson Corporation, which BCE would subsequently combine with its previous acquisition, the CTV network, to form Bell Globemedia Inc. The Bureau's examination of the BCE-Globe and Mail transaction addressed similar issues to those reviewed in the CanWest-Hollinger and Quebecor-Vidéotron cases and came to the same conclusions.

The Bureau also looked at vertical issues concerning high-speed Internet access; these were identified as a concern in the AOL-Time Warner merger. The Bureau determined that high-speed Internet access was not a concern given competitors' access to telephone-based Digital Subscriber Line services and a CRTC decision respecting access to the high-speed Internet network on cable.

Case Summaries

The following are summaries of some of the major cases the Bureau reviewed over the past year. Other industries with transactions that raised competition concerns included pulp and paper, food services, food processing and broadcasting.

The Coca-Cola Company of Canada and Cadbury Beverages Canada Inc.

Last year's annual report noted that the Bureau was reviewing the case of the Coca-Cola Company of Canada and Cadbury Beverages Canada Inc. On July 26, 2000, the two companies announced that they had mutually agreed to no longer pursue the acquisition by Coca-Cola of Cadbury Schweppes' beverage brands in Canada and Mexico. The two parties stated that as a result of competition concerns raised by the regulatory authorities in both countries, they had agreed to end the uncertainty and forgo this aspect of the transaction. As a result, the Bureau closed its file on this matter.

Canadian Waste Services and Browning-Ferris Industries Ltd.

On April 26, 2000, the Commissioner filed an application with the Competition Tribunal challenging Canadian Waste Services Inc.'s acquisition of the Ridge landfill in southern Ontario from Browning-Ferris Industries Ltd., a subsidiary of Allied Waste Industries Inc.

The Commissioner made the application following a thorough investigation beginning in 1999 that involved the full merger of Canadian Waste Services and Browning-Ferris Industries, and resulted in a voluntary restructuring of the transaction. While other competition concerns arising from the full merger had been resolved, the effects of the acquisition of the Ridge landfill remained in dispute. Canadian Waste Services, the largest waste management company in Canada, already owned six landfills in southern Ontario. The Commissioner concluded that the acquisition of the Ridge landfill would likely prevent or substantially lessen competition in the provision of disposal services in the Greater Toronto Area and in the Chatham-Kent area due, in part, to high barriers to entry and a lack of effective remaining competition. Although Canadian Waste Services acquired the Ridge landfill, the Commissioner obtained a consent interim order from the Competition Tribunal to ensure that the operations of the Ridge landfill remained separate from the business operations of Canadian Waste Services pending final resolution of the application.

Prior to commencement of the hearing, Canadian Waste Services and the Commissioner jointly submitted a detailed statement of agreed facts to the Competition Tribunal, which was the first time this approach was used in a contested proceeding. This resulted in a shorter hearing time and the need for fewer witnesses. In addition, the Commissioner and Canadian Waste Services participated in an electronic filing pilot project with the Competition Tribunal, in which the parties presented all the documentary evidence at the Tribunal hearing in electronic format. The hearing took place in November 2000.

The Tribunal rendered its decision on March 28, 2001. The Tribunal allowed the Commissioner's application, ruling that the acquisition of the Ridge landfill by Canadian Waste Services would substantially lessen or prevent competition in both the Greater Toronto Area and in Chatham-Kent. The Tribunal will decide on the appropriate remedy at an upcoming hearing.

Toronto-Dominion Bank and CT Financial Services

In February 2000, Toronto-Dominion Bank acquired CT Financial Services, the parent company of Canada Trust. The merger was approved by the Competition Bureau and the Minister of Finance in January 2000 on the condition that the merging parties provide written undertakings to divest certain bank branches, as well as Canada Trust's MasterCard credit card portfolio, to acceptable purchasers within a specified time period. The Bureau required these divestitures to remedy competition issues in retail branch banking in the Kitchener, Port Hope and Brantford markets, as well as in the Canadian credit card network market. Following the merger, the merging parties managed and operated these assets independently from their own operations prior to being divested.

Toronto-Dominion Bank has fulfilled its obligations as specified in the written undertakings. In particular, with prior approval from the Bureau, it sold 11 retail branches in the Kitchener area and one in Port Hope to the Bank of Montreal, and one retail branch in Paris, Ontario, to Laurentian Bank of Canada. In addition, Toronto-Dominion Bank sold the Canada Trust MasterCard issuing portfolio to Citibank Canada and the acquiring portfolio to First Data Acquisition Corp.

These transactions resulted in greater competition in the relevant markets.

Lafarge Canada Inc. and the Warren Paving & Materials Group Limited

On July 25, 2000, Lafarge Canada Inc. and Kilmer Van Nostrand Co. Limited (KVN) announced the acquisition of KVN's wholly owned subsidiary, the Warren Paving & Materials Group Limited, by Lafarge.

Lafarge is an indirect subsidiary of Lafarge S.A. of France, one of the world's leading producers of construction materials. Lafarge has significant aggregate, paving and asphalt operations throughout Canada. Warren produced aggregates and operated an asphalt business in Ontario, Alberta, Saskatchewan and British Columbia.

After a thorough review of the proposed merger, the Bureau concluded that it would likely substantially lessen or prevent competition in the supply of aggregates to the Edmonton area and in the Fraser Valley in British Columbia. Lafarge provided the Bureau with undertakings to divest a significant portion of Warren's aggregate operations in the Edmonton area and to terminate a marketing agreement between Warren and another competitor. Lafarge also agreed to divest Warren's aggregate business in the Fraser Valley.

These undertakings provided the Bureau with the right to monitor Lafarge's compliance and to apply to the Competition Tribunal for a consent order to formalize the agreement.

Superior Propane Inc. and ICG Propane Inc.

In December 1998, the Bureau challenged the acquisition of ICG Propane Inc. by Superior Propane Inc. Hearings were held before the Competition Tribunal in late 1999 and early 2000, and a hold separate consent order was put into effect.

On August 30, 2000, the Tribunal found that the merger would prevent competition in Atlantic Canada and substantially lessen competition in many local markets across Canada, as well as for national customers. However, while acknowledging that the appropriate remedy would be the total divestiture of ICG Propane, a majority of Tribunal members concluded that the two companies had successfully raised the efficiency defence and, thus, should be allowed to merge. The Tribunal applied what economists refer to as the total surplus standard and concluded that the efficiency gains from the merger could only be compared with the merger's negative impact on the economy's use of resources. Under this standard, other effects of the merger, notably that consumers would pay higher prices greatly to the benefit of the merging parties, could not be considered.

In light of this decision, the merging parties filed a motion with the Tribunal to dissolve the hold separate consent order. The Tribunal agreed, saying that it lacked jurisdiction to uphold the order, and the Bureau failed in its attempt to stay that decision. Subsequently, the Bureau asked the Federal Court of Appeal to review the Tribunal's decision concerning both the efficiency defence and the dissolution of the hold separate consent order. The Bureau also asked that the order be reinstated during the appeal process, but this request was refused.

The appeal was heard in January 2001. At that time, the Federal Court reserved judgment on the efficiency defence and rejected the appeal of the order. *

* On April 5, 2001, the Federal Court of Appeal accepted the Bureau's appeal on the merits and ordered that the matter be remitted to the Tribunal. The court agreed with the Bureau that the Tribunal had interpreted the Competition Act too narrowly. It ruled that the effects against which the efficiency gains had to be contrasted were broad. These effects included the harm to consumers of paying higher prices as well as any other effects that ran counter to the objectives of competition. 

Dow Chemical Company and Union Carbide Corporation

In a worldwide transaction announced on August 4, 1999, the Dow Chemical Company entered into an agreement to buy Union Carbide Corporation, potentially merging two of the largest and most technologically advanced chemical companies in the world, with combined operations in 168 countries. The merger review involved multiple products and geographic markets, and required extensive cooperation among the Bureau, the U.S. Federal Trade Commission and the European Commission.

Following a thorough investigation, the Bureau identified significant anti-competitive effects in a number of product markets, including the following:

• the technology for the production of new consumer plastic products made from polyethylene
• ethyleneamines, which are used in a wide variety of applications, including chelating agents, fuel additives, surface-active agents, personal care products and pulp and paper products
• ethanolamines, whose applications include surface-active agents, personal care products, herbicides, gas purification, pharmaceuticals and fabric softeners.

In February 2001, as a result of these competition concerns, the parties agreed to divest important polyethylene technology assets and intellectual property rights to BP Amoco PLC, Dow's global ethyleneamines business to Huntsman Corporation, and Dow's global ethanolamines business and Dow's methyldiethanolamine-based gas treating products business to Ineos plc.

Lafarge S.A. and Blue Circle Industries PLC

In February 2000, Lafarge S.A. of France made an unsolicited offer through the London stock exchange to acquire all the shares of Blue Circle Industries PLC of the U.K. Under the terms of the London stock exchange, this bid had to be accepted by the majority of Blue Circle shareholders by May 2000.

Lafarge Canada Inc., the largest cement and related construction materials company in Canada, is controlled by Lafarge Corporation of Virginia, which in turn is controlled by Lafarge S.A. Blue Circle, a U.K.-based cement and related construction materials producer, has operations in Ontario. Both companies sell to Canadian customers, and export significant quantities of cement from their Ontario facilities to customers in the northern United States. Both are highly vertically integrated, supplying ready-mix concrete and concrete products, as well as aggregates, to various Ontario markets.

The Bureau worked closely with the U.S. Federal Trade Commission in its investigation of the proposed merger. It concluded that, if the merger went through, it would likely substantially lessen or prevent competition in Ontario for cement and related construction materials. In April 2000, the Bureau announced that Lafarge S.A. had agreed to divest all of Blue Circle's cement business and the vast majority of its related construction materials business in Canada to resolve the Bureau's competition concerns. However, the bid was ultimately opposed by Blue Circle's board of directors and senior management.

In April 2000, in the course of its bid, Lafarge S.A. acquired slightly less than 20 percent of Blue Circle's shares. Simultaneously, Lafarge entered into an option arrangement with a German financial institution, Dresdner Bank AG, to buy its 9.6 percent interest in Blue Circle. As a result of discussions with the Bureau about its competition concerns, Lafarge S.A. announced in June that Lafarge would immediately terminate its option agreement with Dresdner, reduce its share-holdings in Blue Circle to less than 10 percent within a specified time, and not sit on the Blue Circle board of directors. As well, Lafarge agreed to certain limitations to its voting rights: a trustee would vote the shares in excess of 10 percent. In early August, the share divestiture agreement was finalized; in the fall of 2000, a British financial institution, Law Debenture Trust Corporation, was approved to act as a trustee to vote the excess shares; and in early December 2000 the proxy voting agreement was finalized.

In January 2001, Lafarge S.A. announced it had reached an agreement to buy the 77.4 percent of Blue Circle shares that it did not already own. The Bureau and Lafarge S.A. then began concluding the terms of the asset divestitures required under the April 2000 agreement between the Bureau and Lafarge S.A. The remedy will be in the form of a consent order application scheduled to be filed before the Competition Tribunal early in the 2001­2002 fiscal year.*

* On June 15, 2001, the Commissioner applied to the Competition Tribunal for a consent order calling for unprecedented divestitures, as well as an interim hold separate order pending the divestitures. On June 19, the Competition Tribunal issued the interim order and set August 1 as the date to hear the consent order application. The Commissioner's applications and the interim order are available on the Competition Tribunal's Web site (http://www.ct-tc.gc.ca/).

Abitibi-Consolidated Inc. and Donohue Inc.

In February 2000, Abitibi-Consolidated Inc. announced its intention to acquire Donohue Inc. for approximately $7.1 billion, significantly increasing the size of the world's largest newsprint maker.

After a thorough review, the Bureau concluded that the transaction would likely substantially lessen or prevent competition in the supply of newsprint in eastern Canada. However, the Bureau determined that the merger would not raise serious competition concerns in other Canadian markets where Abitibi and Donohue operate.

In February 2001, Abitibi provided an undertaking to divest its Port-Alfred newsprint mill in Ville-de-la-Baie, Quebec, along with all the assets necessary for the continued and effective operation of the mill. The mill has an annual newsprint production capacity of approximately 400 000 tonnes.

This undertaking also gives the Bureau the right to apply to the Competition Tribunal for a consent order to formalize the agreement if the mill is not sold following Abitibi's sale process. The terms of the consent order would be subject to the Tribunal's approval.

CanWest Global Communications Corp. and Hollinger Inc.

	In July 2000, CanWest Global Communications Corp. announced its intention to acquire the majority of Hollinger Inc.'s Canadian media interests, including its large metropolitan daily newspapers and community newspapers, a 50 percent share of The National Post, and Internet assets such as Canada.com. The Bureau reviewed
the proposed transaction and concluded that, since there was no evidence that newspapers, the Internet and television compete directly for retail advertising normally found in newspapers, the transaction would not substantially lessen competition in those markets for advertisers.

However, the Bureau expressed competition concerns about the impact of the resulting connection between Canada's two principal business newspapers, The Globe and Mail and The National Post, through the business-oriented specialty channel, ROBTv, in which both CanWest (affiliated with The National Post) and The Globe and Mail had interests.

As a result of these concerns, CanWest agreed to the Bureau's request to place its entire investment in ROBTv in trust, pending resolution of the partnership situation.

As the undertakings took effect at the time of the closing of CanWest's acquisition of Hollinger's assets, CanWest also agreed to ensure that Hollinger did not share confidential information with ROBTv and The Globe and Mail. The undertakings further provided the Bureau with the right to monitor CanWest's compliance and to apply to the Competition Tribunal for a consent order to formalize the agreement.

Quebecor Inc. and Groupe Vidéotron Ltée

In a public offer made on September 27, 2000, Quebecor Inc., through its subsidiary Quebecor Média Inc, proposed acquiring all the outstanding shares of Groupe Vidéotron Ltée. This would have given Quebecor control, in viewership terms, of the first and third largest French-language television networks in Quebec, TVA and TQS. As a result, Quebecor would control more than half of all the French-language television advertising revenues in the province.

The Commissioner concluded that this proposed merger would likely prevent or substantially lessen competition in the sale of French-language advertising air time in Quebec for the following reasons:

• it was unlikely that a new conventional television network would be licensed in the near future under the current regulatory framework
• French-language specialty channels could only contest a limited share of the television advertising market
• other media were very poor substitutes for television as far as advertisers are concerned.

On November 10, 2000, the Bureau filed an application for a consent order with the Competition Tribunal to require Quebecor to sell TQS. On January 15, 2001, the Tribunal issued the order, directing Quebecor to sell TQS by December 31, 2001 or via a trustee thereafter if the CRTC approved Quebecor's acquisition of TVA.

On March 13, 2001, the Bureau announced, following its review of other aspects of the transaction, that competition would remain vigorous in the other markets it had examined, including access to high-speed Internet services and the supply of advertising space in magazines, on Internet sites and in other French-language media in Quebec.

Trilogy Retail Enterprises L.P. and Chapters Inc.

In November 2000, Trilogy Retail Enterprises L.P., in a hostile takeover attempt, announced an offer to acquire a majority share of Chapters Inc., with the purpose of merging Chapters with Indigo Books & Music Ltd. In February 2001, Trilogy was successful in this bid.

Chapters is the dominant book retailer in Canada, owning 76 book superstores, the World's Biggest Bookstore in Toronto, and 231 mall-based bookstores operating under the Coles, Smithbooks, Librarie Smith, Classic Books and The Book Company names. Chapters also owns a majority share of Chapters Online Inc., one of the two key Canadian-based book retailing Internet sites.

Indigo is the only other significant owner of book superstores in Canada, with 15 locations in southern Ontario, Alberta, British Columbia and Quebec. It also has the only other significant Canadian-based book retailing site, Indigo.ca.

The Bureau's review determined that the proposed transaction would be problematic for both consumers and publishers and could substantially lessen or prevent competition in both upstream and downstream markets. The Bureau was concerned that the high concentration in book retailing would increase with the merger, as would the ability of the merged entity to impose anti-competitive terms of trade on publishers.

As of March 31, 2001, Bureau negotiations to resolve the competition concerns were continuing.*

* In June 2001, the Competition Tribunal confirmed a consent order. The consent order, agreed to by Chapters and Indigo, includes offering for sale 13 large-format book superstores, 10 mall stores, certain of Indigo's on-line assets, and up to three store brands (Smithbooks, Classic Books and Prospero). In addition, Chapters, Indigo and publishers' associations have agreed to a code of conduct setting minimum terms of trade between the merged company and publishers for five years.

Merger Benchmarking

In 2000­2001, the Competition Bureau completed a benchmarking study of the merger review process in Canada. Through interviews with staff, stakeholders, other antitrust agencies and members of the international competition bar, the Bureau identified best practices in Canada and abroad to ensure that the Canadian merger review process remains efficient, effective, timely and transparent.

The Bureau has taken a number of important steps following the review, and more will follow. The Bureau set up the Merger Notification Unit to ensure consistency and timeliness in merger review and to conserve available resources for those transactions that require in-depth review. Timely reviews are important to allow businesses to proceed with competitive transactions that contribute effectively to the economy.

The Canadian Merger Review Benchmarking Report is available on the Bureau's Web site (http://www.competition.ic.gc.ca/ ).

Merger Examinations*

Note: 

Breakdown of Mergers by Year, 1996­2001

* Excludes notification when an advance ruling certificate was requested.

Note: total mergers is the total number of examinations commenced during the fiscal year.

Merger Review: Meeting Service Standards

Excludes securitizations and is based on actual end date.