Table of Contents
On this page:
- The basics
- How mergers are reviewed
- Reasons why compliance is good for your business
- Key Takeaways
- Case studies
The basics
The Competition Act defines a merger as acquiring control over or significant interest in the business of a competitor, supplier, buyer or another person.
A merger could take place by way of acquiring shares or assets, amalgamation, a combination or any other way of acquiring control over or significant interest in the business.
Most often, mergers that may cause competition concerns involve businesses that supply competing products or services, but the Act applies to all mergers.
How mergers are reviewed
Most mergers do not raise competition concerns. However, the Competition Bureau may take action if a merger could result in harm to competition. Harm to competition can occur in a number of ways, including:
- higher prices
- reduced output
- reduced quality of goods or services
- less innovation
We can review any merger for up to one year after closing.
For more information, see our overview of the merger review process.
Infographic 03 B - How mergers are reviewed
-
Description of the mergers process
Mergers
Mergers can be divided into two main groups: Notifiable and Non-notifiable Transactions.
Notifiable transactions
In certain cases, the Competition Act requires the parties to a proposed merger to notify the Bureau prior to closing the transaction. This is known as a notifiable transaction.
- If the proposed transaction exceeds certain monetary thresholds, the parties must notify the Bureau.
- The Bureau must be notified of the transaction before the transaction is completed.
- The parties must provide certain specified information and wait for a specified period before completing the proposed transaction
- The Bureau can review any merger for up to one year after closing.
Non-notifiable transactions
These are mergers that do not meet the thresholds for notification.
In these cases:
- the parties can voluntarily contact the Bureau
- the Bureau can review any merger for up to one year after closing
If you are required to notify us about a merger but fail to do so, you may have committed a criminal offence and may have to pay a fine.
Gun-jumping
If you are a party to a notifiable transaction, you cannot complete the merger:
- before the end of a specified period of time, or
- before we clear the transaction
Merging parties that integrate their businesses or begin to close their transaction before these conditions are met may have engaged in what is called gun-jumping. They may be subject to civil or criminal penalties.
Transactions designed to avoid notification
The Act has a section related to mergers called anti-avoidance. If you structure your transaction to avoid the requirement to notify the Bureau, the transaction will still be treated as a notifiable transaction under the Act. If you complete such a transaction without notifying us, you may have committed a criminal offence and may have to pay a fine.
Reasons why compliance is good for your business
Most businesses in Canada want to do the right thing and operate within the law. Companies with strong compliance programs are in the best position to do so.
A credible and effective compliance program minimizes the chances of risky behaviour or potentially illegal activity and its consequences.
It can help your organization:
- operate within the law
- keep marketing activities compliant
- understand the risks from industry events and interactions with third parties, such as partners, competitors, or trade associations
- reduce the risk of costly investigations and lawsuits that interfere with your operations
- avoid penalties for your business and jail time for your people
- avoid the consequences of being associated with criminal conduct and protect your reputation
- minimize your business’ exposure to class action lawsuits
- remain eligible to participate in federal public procurement
A credible and effective compliance program strengthens your business and your reputation.
It might help:
- your organization recruit and retain good talent
- your business compete fairly and with confidence
- your people spot when others in the market are not playing by the rules
- your organization meet its environmental, social and governance goals
A small reminder on what makes a compliance program credible and effective
Your compliance program needs to be credible and effective to truly help you.
To be credible, your program must at a minimum show your business’ genuine commitment to obeying the law and competing fairly.
To be effective, your program must inform all your people, and those acting for your organization, that compliance is important. It must inform them of their legal duties and your internal compliance measures. It should also give you the tools to prevent and detect misconduct.
Your program should be reasonably designed, implemented and enforced in the circumstances. This means that it addresses your organization’s risks within your resources and in light of your business activities.
If you’re a small business . . .
Compliance is important for all businesses, no matter their size, risk profile, industry or location of operation.
Credible and effective compliance programs don’t have to be costly or complicated. They’re not only for large organizations. If your business is small or medium-sized, you need to make sure that management is committed to doing the right thing. Even simple steps can ensure that your compliance program runs effectively.
There are many benefits to having a credible and effective compliance program. Here are just a few examples:
- You stand a better chance of doing business with larger companies. They generally have compliance programs in place. They’ll probably be more comfortable working with you if you do too. Some might even require their suppliers or partners to have a compliance program.
- If you want to sell your business, you’ll find it easier to attract potential buyers. Acquirers will look into your organization’s compliance history. A compliance program demonstrates that you take compliance seriously.
Key Takeaways
Assessing risk in your proposed merger
- Have you reviewed the publicly available materials and merger-specific guidance documents put out by the Bureau?
- Have you familiarized yourself with the notification requirements under the Act, associated regulations and public guidance, including how to determine whether a proposed transaction is a notifiable transaction?
- Have you conducted due diligence prior to the merger to understand if competition law issues will arise due to the proposed transaction?
- If the proposed transaction is a notifiable transaction, have you fulfilled the prescribed pre-closing requirements?
- If your transaction is a non-notifiable merger, can competition issues arise such that you should voluntarily contact the Bureau?
- Does the other party (or parties) to the proposed transaction have its own compliance program?
- Are all your concerned employees adequately trained on the Act and provisions related to merger notification?
- Do you plan to integrate your business or share competitively sensitive information (such as pricing and sales strategies) with any other parties before the merger receives approval from the Bureau or before the time specified under the Act has elapsed?
- Do you plan to close the transaction before receiving approval from the Bureau or before the time specified under the Act has elapsed?
- Have you thought about updating the compliance programs and training after the merger or acquisition as your business and risks may have changed?
If you have any questions, ask your lawyer or compliance officer and/or or consult the Merger Intelligence and Notification Unit before you complete any proposed merger transaction.
Case studies
Case Study 1 — Failure to notify a merger
Let’s look at two hypothetical scenarios that compare a positive and a negative approach to compliance for failing to notify the Bureau about a merger.
Background
Nat Cole Cataman Finance Corp (NCC) and Bashir Salman Hashmi Holdings (BSG) are Canadian publicly traded investment companies. Combined, they have assets of over $400 million.
NCC owns shares of BSG. Until recently, those shares never totalled more than 18% of BSG’s total shares.
Last month, the director of NCC’s trading department believed that BSG’s shares were undervalued and would be a good investment. NCC bought more shares in BSG, bringing its total voting interest in BSG up to 21%.
Last week, at an NCC board meeting, this transaction was listed as a recent activity for the board to review. NCC’s legal team raised a concern that it was not informed about this purchase.
The trading director said that he did not believe it was necessary to inform the legal team, because he chose to make the acquisition as an investment, not to obtain a controlling interest in BSG.
The legal team replied that even though a majority stake was not acquired, certain thresholds of ownership require all companies involved to file a notification with the Bureau.
Positive approach to compliance
Weak existing compliance measures
NCC had a compliance program, but it was not regularly updated.
Once the matter was brought to the attention of senior management and the legal team, NCC took the following actions, it:
- hired outside legal counsel
- contacted BSG to inform the company of the acquisition
- filed a notification with the Bureau, along with a letter explaining the circumstances around the initial failure to notify
- submitted the required filing fee
Outcomes
During the review, the Bureau found that NCC’s actions may have violated the Competition Act because the company did not submit a notification for a transaction that legally required one.
However, the Bureau also found that both companies acted diligently once the action was discovered.
NCC cooperated to strengthen its compliance program
The Bureau noted that NCC had a compliance program, but that it was out of date. Specifically, the program needed to cover pre-merger notification requirements and include additional training for managers and directors. NCC proactively worked with the Bureau to update its compliance program.
Negative approach to compliance
Weak management support for compliance
NCC did not have a credible and effective compliance program. Its senior management did not work to create a culture of compliance.
Even though the legal team highlighted the need for notification, senior management ignored the advice.
Bureau pursues enforcement action
The Merger Intelligence and Notification Unit of the Bureau regularly gathers information about mergers and acquisitions. It learned about NCC’s acquisition of BSG’s shares. The Bureau contacted NCC and began a review. During the course of its review, it discovered the intentional notification avoidance and initiated proceedings for failing to notify a notifiable transaction.
Case Study 2 — Structuring a transaction to avoid having to notify the Bureau
Let’s look at two hypothetical scenarios that compare a positive and a negative approach to compliance in a merger that would fall under the Act’s anti-avoidance provisions.
Background
Gold Standard is an American publicly traded heavy machinery manufacturer and wholesaler, with a focus on the oil and gas and mining sectors. One product it manufactures is widgets used for oil and gas extraction.
Silver Spoon is a Canadian privately held corporation that manufactures and sells various types of oil and gas equipment. Its principal focus is on widgets used for oil and gas extraction.
Their products overlap in many but not all of the geographic markets they serve. The principal overlaps are in northern British Columbia, Ontario and Quebec.
Gold Standard and Silver Spoon are the only two entities that supply certain oil and gas companies with widgets. Widgets are essential for a specific type of extraction method.
Gold Standard and Silver Spoon first contemplated a merger through the implementation of an asset purchase agreement (Structure A).
However, after additional deliberation they considered the use of two separate agreements: an asset purchase agreement and a share purchase agreement (Structure B).
Structure A and Structure B both result in Gold Standard’s acquisition of all of Silver Spoon’s Canadian operating business segments. However, the two companies believed that only Structure A would be notifiable under the Act. Gold Standard and Silver Spoon prepared Structure B because they believed it permitted them to avoid notification.
The reason Gold Standard and Silver Spoon considered Structure B is because they feared that, after notifying the Bureau and providing it with the required information, the Bureau might conclude that the merger could harm competition and seek to block the merger or obtain alternative remedies, such as divestitures.
Positive approach to compliance
Risk assessment triggered by changes in the law
Gold Standard had a comprehensive compliance program that was regularly monitored and updated.
When the Act was amended in June 2022, the compliance officer initiated a review of the organization’s risk assessment and updated the program to require approval of a high-level working committee for any major decision in Gold Standard.
Governance and internal controls strengthened
As the acquisition was an important project for Gold Star’s business expansion plans, the compliance officer was made a member of the working committee whose approval was required to proceed with the transaction.
When presented for his approval, the compliance officer highlighted the Act’s provision relating to anti-avoidance.
Outcome
Based on the compliance officer’s advice, Gold Standard and Silver spoon decided instead to choose Structure A and notified the Bureau prior to completing the proposed transaction.
Negative approach to compliance
Weak compliance culture leads to risk
Gold Standard and Silver Spoon did not take compliance seriously, and they chose Structure B to avoid notification.
The companies completed the transaction, resulting in the new company Bronze Medal, and did so without notifying the Bureau.
Soon after the closing, the Bureau received multiple complaints from customers of Gold Standard and Silver Spoon.
Outcome
The Bureau contacted Bronze Medal and began a review. During the course of its review, it discovered the intentional notification avoidance and initiated proceedings for failing to notify a notifiable transaction.
How to contact us
For general inquiries: contact the Bureau
To provide information on notifiable transactions or in case you have any questions on non-notifiable transactions, contact the Merger Intelligence and Notification Unit.
DISCLAIMER: Because every situation presents unique facts, the information set out herein is provided for general information only. This content is not a substitute for legal advice, nor is it a binding statement of the Commissioner of Competition’s position on the requirements or efficacy of any particular compliance program. Indeed, there is no one-size-fits-all approach when it comes to achieving credible and effective compliance.
The Competition Bureau launched a Compliance Portal to help you and your business stay on the right side of competition and labelling laws. It replaces the Corporate Compliance Programs Bulletin. We’re currently reviewing the feedback we received during the recent consultation on the form and substance of this portal. An update will follow later this year.