By Carlos Martinez and Mark Coakley
Changes to Canada’s competition law proposed last month by the government of Prime Minister Justin Trudeau are not expected to alter the country’s M&A market or reduce rising living costs, a former Competition Commissioner and two competition lawyers said.
The government on 21 September introduced Bill C-56, which seeks to amend Canada’s Competition Act, among other things. The move, which is part of Trudeau's plan “to address the escalating price of groceries,” follows a public consultation launched in late 2022 that ran through the end of March 2023.
The bill seeks to repeal Canada’s ‘efficiencies defense’ – unique among G-7 countries – under which a merger with anti-competitive effects may be allowed to proceed if those anti-competitive effects would be outweighed by economic efficiency gains.
“This provision has long and repeatedly been cited by stakeholders as one of the greatest weaknesses in the Competition Act that prevents it from accomplishing the primary goal stated in its purpose clause: to promote competition,” Canada’s Ministry of Innovation, Science and Economic Development (ISED) told Mergermarket in a written statement.
Repealing the efficiencies defense, however, will make little practical difference as the defense rarely plays a decisive role in merger reviews, according to James Musgrove, a McMillan partner focused on competition, antitrust, and foreign investment. “Very few deals have been approved… on the efficiencies defense,” he said. “You raise it when you have efficiencies, but mostly” it is pointless.
The efficiencies defense has been used in only a handful of major mergers since 1986, according to John Pecman, the former Competition Commissioner.
Rogers Communications [TSX:RCI], for example, argued that its CAD 20bn (USD 14.7bn) takeover rival Shaw Communications would generate efficiencies, but Canada’s Competition Tribunal did not even deliberate on whether those efficiencies outweighed the deal’s potential negative effect on competition because it ruled there were no negative effects, Musgrove said.
The tribunal ended up clearing the mega merger in December 2022 and the Ministry of ISED approved the deal in March.
The tribunal in August ordered Canada’s Competition Bureau to pay Toronto-based Rogers about CAD 13m in costs over the agency’s unsuccessful attempt to block the companies’ merger. The tribunal criticized Competition Commissioner Mathew Boswell for taking an overly “contentious” and “unreasonable” approach that had a very significant adverse impact on the time and costs that were associated with the proceeding.
Rogers did not respond to requests for comment.
And while repealing the efficiencies, defense might not deter companies from pursuing M&A deals, it could embolden the Competition Bureau, said Arlan Gates, partner and member of Baker McKenzie’s global international commercial and trade, and antitrust and competition groups. The bureau might challenge more mergers knowing it has a better chance of winning its case in court without having to pierce through the efficiencies defense, he said.
“The Competition Bureau has made it very clear in its own submissions and statements that the efficiencies [defense] has significantly constrained its ability to take action against mergers it viewed as anti-competitive, whether through litigation or a negotiated consent agreement,” the Ministry of ISED said.
Since 2009, only two merger challenges have been fully decided by the courts, Michael Kilby and Lawson Hunter, from Stikeman Elliott’s competition and foreign investment group, wrote in a December op-ed in The Globe and Mail. In both instances, the Competition Tribunal rejected the efficiencies defense, but the Supreme Court overturned one of its decisions on final appeal, they added.
Risk of litigation
A change that could prompt future litigation is its proposal to grant the Competition Bureau with the ability to obtain court orders to compel companies or individuals not under investigation to provide information for market studies, Gates said. Although details on the amount and type of information that could be compelled are unknown, the process is likely to be lengthy, burdensome, and time consuming, he added.
Pecman, the former Competition Commissioner, said he would not be surprised if companies challenged such court orders, possibly raising Charter of Rights and Freedoms issues related to self-incrimination.
Companies could also challenge the bureau by arguing the information requested contains confidential data or trade secrets, Gates said.
According to the Ministry of ISED, all information provided to the Competition Bureau is currently treated as confidential. “In addition, the scheme proposed in Bill C-56 contains numerous safeguards allowing parties to voice their views on the proposed scope of an inquiry, to vet part of a draft report that concerns information they provided, and to have due process to challenge any production order sought by the Commissioner before the court.”
Musgrove, from McMillan, said he expects most information requests “will be resolved by way of agreements.”
The proposed changes to Canada’s competition law by Trudeau’s government is part of an action plan to help drive down living costs, particularly housing and grocery prices. The government in September noted that enhancing “competition across the Canadian economy, with a focus on the grocery sector… would help drive down costs for middle-class Canadians.”
But given that there are no merger challenge decisions pending in the grocery sector, it is unlikely that amending the Competition Act will deliver on that goal, Gates said.
The Ministry of ISED, however, contends that consolidation across the food distribution chain, not only at the retail grocery level, has been observed for a number of years. “Moving forward, the Bureau will be able to examine such transactions with fewer obstacles to ensure that they will not harm consumers and lead to higher prices,” it said.
Trudeau’s government has been strongly criticized for its inability to manage spiralling grocery and housing costs. Trudeau’s Liberals trailed the opposition Conservatives by 12%, according to a poll published in September by polling company Angus Reid Institute.
“Who am I to know what motivates politicians, but it might be that bad headlines and bad polls and people upset about grocery inflation results in political action,” said Musgrove.