Increase in the Mandatory Review Thresholds under the Competition Act and the Investment Canada Act


Competition Act - Increase in Transaction-Size Threshold

The Competition Bureau announced that the pre-merger notification threshold relating to transaction-size will increase to $80 million from the 2012 threshold of $77 million.  The “size of parties” threshold (which is not indexed to inflation), will remain at $400 million.  The Competition Bureau must generally be given advance notice of proposed transactions where both: (a) the target has assets in Canada or revenues generated in or from Canada in excess of $80 million, and (b) the parties and their respective affiliates have, in the aggregate, assets in Canada or revenues in, from or into Canada in excess of  $400 million.  As per the indexing mechanism set out in the Competition Act, the pre-merger notification transaction-size threshold is reviewed annually.

Investment Canada Act -Increase in General Review Threshold

The government has announced that the new 2013 threshold under the Investment Canada Act for net benefit review of direct acquisitions of control of Canadian businesses by World Trade Organization (WTO) member investors, or of Canadian businesses which are ultimately controlled by WTO members (other than Canadians) will increase from $330 million to $344 million.  The increased threshold does not apply to acquisitions (direct or indirect) of Canadian businesses which have a cultural component.

In addition, recall that in December 2012 the government confirmed that this threshold for “net benefit review” will be increased over a period of four years to $1 billion based on enterprise value rather than asset value as is currently the case.  However, the increased threshold will be applicable to private sector investments only.  Direct acquisitions of control by state-owned enterprises (SOEs) will be subject to the existing net benefit review threshold of $344 million in asset value (not enterprise value), adjusted annually to reflect the change in nominal gross domestic product in the previous year.  A precise timeline for the implementation  of these changes has not been announced and legislative amendments will be required.   When these changes are implemented (expected in 2013), there will therefore be three thresholds for pre-closing “net benefit” review:

  1. $5 million in book value of assets of the Canadian business for the direct acquisition of control by non-WTO investors and investments by any non-Canadian investor in a Canadian cultural business (post-closing review is required for the indirect acquisition of control of a Canadian cultural business which has gross assets of $50 million or more, or the indirect acquisition of a Canadian cultural business which has gross assets of $5 million or more but less than $50 million, where the Canadian assets acquired represent more than 50% of the aggregate gross asset value of all assets being acquired);
  2. $344 million (subject to annual adjustment) in book value of assets of the Canadian business for direct acquisitions of control by SOEs;
  3. Higher thresholds implemented over four years to $1 billion in “enterprise” value for private sector investments: 
               a. $600 million in enterprise value of the Canadian business for two years;
        b. increase to $800 million in enterprise value for a further two years; and
        c. increase to a threshold of $1 billion in enterprise value.

We expect that the government will issue revised regulations soon to (finally) effect the commitment made back in 2009 to raise the thresholds for private sector investment.

Please contact a member of our Competition & Foreign Investment Group if you have any questions regarding the above.

Topics:  Competition Act, Investment Canada Act, Threshhold Requirements

Published In: Antitrust & Trade Regulation Updates, Business Organization Updates, Finance & Banking Updates, Mergers & Acquisitions Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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