Canadian businesses looking to engage in strategic mergers that may raise material competition questions should contact the
Background
Secure acquired Tervita on
In addition to arguing that the Merger would not substantially lessen competition, Secure invoked the efficiencies defense, arguing that the gains in efficiency brought about by the Merger would be greater than and would offset any anti-competitive effects and those gains in efficiency would not likely be attained if the divestiture order were made.
The Tribunal decision demonstrated that the Commissioner is capable of establishing the anti-competitive effects of a merger under the Competition Act in its current form, and that there is a higher threshold to establish the efficiencies defence than has been indicated by recent public commentary. Closing a notifiable transaction in the face of the Commissioner's outstanding concerns may carry a material risk of facing a post-closing divestiture order.
FCA Decision
The
The
Key Takeaways
The key takeaway from this decision is that the efficiencies defence is not and has never been a panacea or a "free merger to monopoly card" card. The Tribunal applies five screens to determine whether stated efficiencies in fact count towards the defence, with certain stated efficiencies lost to each screen. It is not sufficient for parties to a merger with anticompetitive effects to simply put forward quantified efficiency savings where the Commissioner has quantified anti-competitive harm - a series of tests must be passed in order for the defence to be made out. This decision makes clear that the anti-competitive harm on the other side of the ledger to be weighed against the efficiencies is broader than some might have expected.
The
- markets where there is a substantial lessening of competition and in relation to which efficiencies count because they would be lost in the event of a divestiture order;
- markets where there is an anti-competitive effect (e., a degree of material concentration) but not rising to the level of a substantial lessening of competition that is required for a divestiture order to be issued, and in relation to which the efficiencies therefore do not count because they would not be lost due to a divestiture order, but the anti-competitive effects do count on the negative side of the ledger.
- markets where there is no anti-competitive effect (e., no degree of material concentration) and in relation to which the efficiencies therefore do not count because they would not be lost due to a divestiture order.
Taken together, the above means that in order for efficiencies to save a merger, they must arise in markets where there is a substantial lessening of competition, and they must offset both: (a) the substantial lessening of competition in those very markets; and (b) the anti-competitive effects, falling short of a substantial lessening of competition, in other markets.
This will have particular implications for "multi-market" mergers or retail mergers, as parties seeking to raise the efficiencies defence will have to consider a somewhat awkward category of markets, being markets in respect of which some anti-competitive effect will occur falling short of a substantial lessening of competition. While no divestitures should be required in such markets, they may be highly relevant in that they will count against the efficiencies asserted. Whereas historically under Canadian competition law, one would generally consider only two types of markets, being markets where there is a substantial lessening of competition and markets where there is not a substantial lessening of competition, one must now, where the efficiencies defence is asserted, assess whether there is anti-competitive effect falling short of a substantial lessening of competition in certain markets, in distinction to markets where there is no anti-competitive effect at all. In other transactions, where there is only a single product or geographic market at issue, the above issue would not be expected to arise.
While this is all rather technical, the basic takeaways here are that the
This decision arguably flies in the face of recent criticism of the operation and even existence of the efficiencies defence, which has been viewed by some as a major obstacle to the Commissioner's ability to win merger challenges at the Tribunal when efficiencies are claimed by the merging parties.
This decision further demonstrates that the Commissioner can succeed in challenging mergers under the existing legislation, even when the efficiencies defence is in play. Indeed, since the Competition Act was significantly amended in 2009 to more closely reflect a US-style merger regime with "second request" powers, there have been four full merger challenges decided on the merits by the Tribunal. In only one of them did the efficiencies defence prevail (on the most technical of grounds). Contrary to widespread commentary, we would argue that the role of the efficiencies defence has been shrinking over time rather than growing.
Footnotes
1
2 Commissioner of Competition v.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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