In a recent decision, the Canadian Competition Tribunal affirmed the importance of merger efficiencies as the primary goal of merger reviews in Canada, including in the context of preliminary injunctions.
On June 29, 2021, the Commissioner of Competition sought an “interim interim” order preventing the closing of the merger of Secure Energy Services Inc. and Tervita Corporation. The application to block the merger was denied by both the Tribunal and the Federal Court of Appeal, and the transaction closed as planned on July 2.
In a subsequent application, heard August 4, the Commissioner sought to unwind the merger, prevent integration or cause Secure to hold-separate certain assets. This application was dismissed by the Tribunal on August 16, 2021, in a decision made public on August 23.
In short, the Tribunal found that the benefit to the merging parties from the transaction and the efficiencies that would be achieved by the Canadian economy were quantified, clear and non-speculative, and there was no evidence quantifying any harm to customers or consumers from the merger.
The Tribunal noted:
The Commissioner has made no effort to provide the Tribunal with even a very preliminary or rough sense of how all of [his] evidence comes together, so that the Tribunal can have at least some appreciation of how the interim harm he alleges compares with the harm Secure has identified on its side of the ledger.
On the other side, Secure had:
provided clear and non-speculative evidence regarding the general extent of the harm that it will suffer if the relief requested by the Commissioner is granted.
WHY EFFICIENCIES MATTER
Merger efficiencies remain top of mind for businesses looking to reduce costs and increase the speed of innovation through collaborations, including mergers, particularly as a number of industries are restructuring and adapting to changing global and domestic conditions.
Both Parliament, with the 2009 amendments to the Competition Act, and the Supreme Court of Canada, in its 2015 decision in Tervita, made it clear that merger efficiencies are an essential part of the merger review process in Canada and, in fact, the primary goal that should be pursued by the Competition Bureau in reviewing mergers. (See also Promoting Innovation and Efficiency by Streamlining Competition Reviews and Canada’s Efficiency Defence: Why Ignoring Section 96 Does More Harm Than Good for Economic Efficiency and Innovation.)
Notwithstanding this, the Bureau has sought to minimize the importance of efficiencies in merger reviews by criticizing the efficiencies defence in an article and speeches (Populism, Public Interest and Competition and Strengthening competition: Innovation, collaboration and transparency) and proposing a Model Timing Agreement for Merger Reviews involving Efficiencies, which made it impractical to complete an efficiencies‑generating merger in a timely fashion. The Model Timing Agreement would, on its face, add three to six additional months to the merger review process and generate significant costs for merging parties, and to date there is only one public example of merging parties entering into the Model Timing Agreement.
The critical passage from the August 16 decision notes that, when a party has raised efficiencies from a merger during the review process, the Commissioner must provide certain information on a section 104 application for an injunction to counter those efficiency claims:
… the Commissioner should be able to provide at least rough estimates, supported by evidence, of (i) the range of price effects that are likely to result from the merger; (ii) a range of plausible elasticities; (iii) a “ballpark” estimate of the deadweight loss; and (iv), where applicable, a basic sense of the extent to which non-price effects are likely to result from the merger. This is particularly so where, as here, the Bureau has extensive information from previous cases upon which he can build. Where the Commissioner requires more time to prepare such rough estimates, resort can be had to the interim relief contemplated by section 100 of the Act.
KEY TAKEAWAYS FOR BUSINESS
The August 16 decision makes it clear that efficiencies are of primary importance in merger reviews and provides additional incentives for both merging parties and the Bureau to prioritize the assessment of merger efficiencies at an early stage in the merger review process.
The decision also calls into question the utility of the so-called Model Timing Agreement, under which the Bureau seeks additional time beyond the governing statutory timeframes in other to assess and potentially clear a transaction on efficiencies.
The Tribunal (in its July 1 decision) also suggested that the information-request procedures followed by the Bureau should be streamlined and more targeted to allow the Bureau sufficient time to focus on key issues:
Another part of the solution could be to reduce the amount of information that is sought in a SIR and that then needs to be assessed within a very short period of time.
Merging parties should provide clear evidence of efficiencies they are likely to achieve from a merger and stress the importance of timely closing, where applicable.
Going forward, the Bureau will need to streamline its information request procedures and front-load its assessment of efficiencies arising from a merger.