opinionIn getting mergers performed, the notorious efficiencies defence is means overratedMichael Kilby and Lawson HunterDecember 21, 2022
Michael Kilby is companion and head of the competitors and overseas funding regulation group at Stikeman Elliott LLP. Lawson Hunter is senior counsel at Stikeman Elliott LLP and former head of the Competitors Bureau.
In latest months, public dialogue of Canada’s competitors legal guidelines has reached an all-time excessive. That could be a good factor, given the significance of the topic to the Canadian financial system.
A lot of the general public dialogue has, nonetheless, assumed details not in proof. And the extra typically and loudly sure issues are stated, the extra apparent and indeniable they appear to change into – typically to the detriment of sound coverage making.
That is notably true within the case of Canada’s “efficiencies defence,” underneath which a merger with anti-competitive results could also be allowed to proceed if these anti-competitive results can be outweighed by financial effectivity good points.
The efficiencies defence is usually pointed to as an obstacle to strong enforcement of competitors legal guidelines in Canada. Our level is that, as a press release of historic reality, this view is mistaken. Put in a different way, setting apart whether or not the efficiencies defence is justifiable on coverage grounds, its existence has not performed practically the function in Canadian competitors regulation enforcement that has been just lately instructed.
What are the details? Crucial reality is that solely a really small variety of offers, of restricted consequence to the Canadian financial system, have gone forward due to the defence.
To again up a step, the Competitors Act was final considerably amended in 2009, to appreciable fanfare. A U.S.-style merger-review regime was ushered in, permitting the Competitors Bureau to hunt and acquire super volumes of firm information and paperwork in deciding whether or not to problem a merger. Because the commissioner of competitors on the time rightly stated: “The result’s an up to date Competitors Act that facilitates more practical enforcement, aligns us with our worldwide counterparts, and ensures that each companies and shoppers profit from a aggressive market.”
Since these 2009 amendments, solely two merger challenges have been absolutely determined by the courts. In a 2022 transaction, the tribunal rejected the efficiencies defence, simply because it had within the first transaction in 2012 – the principle distinction being that, in that earlier case, its resolution was overturned on remaining attraction to the Supreme Courtroom in a break up resolution on essentially the most technical of grounds.
There are additionally two merger problem selections pending, together with the high-profile Rogers-Shaw transaction. It’s completely doable, however not broadly understood, that the tribunal might rule in favour of Rogers Communications Inc. RCI-B-T, power the sale of Freedom Cell to Quebecor Inc. QBR-B-T, and but nonetheless reject the efficiencies defence.
There’s in fact the far higher physique of transactions that don’t make all of it the way in which to the tribunal. Are these all being saved by the efficiencies defence? Clearly not. Since 2009, the bureau has obtained about 60 negotiated, public settlements with merging corporations the place they agreed to unload companies to repair competitors issues. The efficiencies defence didn’t stop these essential fixes from occurring. Simply days in the past, for instance, the $600-million sale of a 50-per-cent stake within the Key Entry Pipeline System as required by a bureau settlement was introduced.
On the degree of those way more quite a few negotiated settlements – which are likely to move with little public discover – the Competitors Act appears to be working nicely, with none undue function for the efficiencies defence. Certainly, since 2009, the bureau has, we consider, cited the defence solely 4 occasions (together with one transaction that didn’t proceed in any occasion) as the rationale for its resolution to not problem a merger. In context, roughly 3,000 transactions have been reviewed in that very same interval.
If extra transactions are quietly being saved by the efficiencies defence, then they need to be publicly disclosed, as that might inform and affect debate on this essential matter. Our expertise has as a substitute been the very reverse: the Competitors Bureau sometimes rejects the defence, because it has performed within the Rogers-Shaw transaction.
Our level here’s a fundamental one. It’s that dialogue round competitors coverage in Canada ought to be grounded within the precise transactions and circumstances which have (or haven’t) arisen and that the rising echo-chamber impact ought to be resisted. This data-driven strategy means that tossing the efficiencies defence into the waste bin of historical past is a wholly disproportionate response. Surgical – however materials – adjustments addressing points arising from the Supreme Courtroom’s break up resolution in 2012 can be a much better end result.