Merger Review Benchmarking Report - Chapter 9

Table of Content

With globalization and trade liberalization, it is apparent that an increasing number of the mergers and acquisitions that the Mergers Branch reviews involve more than one jurisdiction. This increase in multi-jurisdictional merger reviews requires that the Bureau and other competition agencies seek ways to minimize the impact of differences between agencies’ merger review procedures and to cooperate with other competition agencies to ensure the most efficient and effective outcomes from such reviews.

The purpose of this chapter is to raise issues with respect to multi-jurisdictional merger reviews, drawing significantly from the findings from the International Competition Policy Advisory Committee⁷⁴ (ICPAC) Report, ⁷⁵ and to highlight some of the practices that are considered important for effective international cooperation in reviews of multi-jurisdictional mergers. The information in this chapter is based on interviews with Bureau staff, other agencies, Bureau stakeholders, and stakeholders of the Office of Fair Trading in the U.K. and of the U.S. Federal Trade Commission and Department of Justice.

I.  Merger Review Processes

While Canadian stakeholders primarily focussed their comments on the Canadian merger review process, references were frequently made to the importance of recognizing that increasingly the Canadian review is only one of many simultaneous reviews. They highlighted the need in these cases for effective cooperation. In addition, some argued that in light of the increasing number of large mergers and in view of the lack of a significant Canadian percentage of the total revenue or assets in many multi-jurisdictional transactions, Canada should focus its resources on the mergers where the Canadian portion of the transaction is significant. This view was put forward by Warren Grover Q.C. in Toronto on June 16, 2000.⁷⁶ Such views are a challenge to the Bureau to continue to develop effective cooperation mechanisms.

In the ICPAC Report, the authors note that "with more than 60 nations now having antitrust merger control laws that require (or provide for) antitrust notification, the overlapping regulations are at times unduly burdensome and costly to the merging parties and can cause unnecessary frictions between nations. The question arises whether the systems can be rationalized and still ensure that enforcers have the tools necessary to identify and remedy anti-competitive transactions."⁷⁷

It is important to recognize that although there have been attempts toward greater convergence in merger review, multi-jurisdictional mergers continue to be complicated in view of legislative and procedural differences among domestic merger review regimes. To quote one practitioner, "Such variances are manifest in different policy objectives, anti-competitive thresholds, analytical factors, information requirements, time limits and remedies, not to mention a host of practical nuances. These differences, coupled with the prospect of reviews in numerous jurisdictions, make multi-jurisdictional mergers complex, time-consuming and expensive. If a boon for antitrust lawyers, the proliferation of regimes has been anything but for clients seeking to transact across borders."⁷⁸

Nonetheless, John J. Parisi, Federal Trade Commission ("FTC"), International Antitrust Division⁷⁹ suggests that "the similarities among competition laws and their enforcement are greater than the differences;... cooperation in enforcement is just as necessary when common enforcement goals are sought as when differences arise; (and) enforcement cooperation is broadening and deepening."

As examples of the growing importance for agencies of multi-jurisdictional transactions, consider the following: "In 1999, global mergers and acquisitions were at an all-time high, with approximately $3.4 trillion (U.S.) in activity announced worldwide.⁸⁰" In 1999, of the 68 second requests issued by the U.S. Department of Justice, 18 involved transactions with an international dimension. In addition, in 1999, "Chairman Pitofsky estimated that approximately 50 percent of the mergers investigated by the FTC at any given time have an impact on consumers in more than one country and often require a remedy or a series of remedies that are coordinated among law enforcement authorities in different countries."⁸¹ Likewise in Canada, transnational mergers represent an increasing and important part of mergers reviewed in terms of transactions that raise important competition issues.

The ICPAC Report includes two comprehensive chapters devoted solely to merger review and recommendations for reform. The Committee provides numerous recommendations aimed at improving merger review worldwide. The main recommendations would, in view of the Committee, if adopted consistently by agencies, enhance both the review of purely domestic mergers and those involving more than one jurisdiction. The Report recommendations fall into two general categories: merger review procedures and international cooperation.

Several of the recommendations in respect of merger review procedures, and in particular, those relating to greater transparency, threshold tests for merger notification, review periods and timing, notifications forms and information requests, and post merger review audits, are relevant to this benchmarking study and reflect many of the views expressed within the Bureau and by those interviewed.

ICPAC recommends that agencies should facilitate greater transparency in the application of their merger review principles by enhancing the publication of guidelines, notices, annual reports, statements and speeches. It is suggested that clearly articulating an agency’s rationale for challenging, or refraining from challenging, significant transactions (that is, decisions that set precedent or otherwise indicate a shift in doctrine or policy) would enhance understanding both by merging parties and by other agencies in a multi-jurisdictional context.

ICPAC recommends increased transparency not only with respect to policies but also in relation to decisions on specific transactions. The Report cites the practice in the EU: "To initiate a second-stage investigation, the EC must set forth reasons for the investigation, alerting the parties to the specific areas of concern. The result is a large body of precedent to guide future parties and agency officials."

The Report also commented favourably on the Canadian approach and long tradition of issuing detailed backgrounders in certain high-profile transactions and transactions that raise novel issues when the Competition Bureau decides not to challenge certain transactions. One Canadian lawyer explained that great value is placed on these backgrounders, in part because jurisprudence in the field is so limited.

ICPAC set out two recommendations on thresholds, the first being that the jurisdictions cast the merger net appropriately "to ensure that they incorporate an appreciable and objectively based nexus to the economy or the jurisdiction." In this regard, ICPAC sees Canada as a positive example, whereby "to trigger a notification obligation the target company must carry on an operating business in Canada coupled with Canadian assets/sales tests." The second recommendation is that thresholds should only be as broad "...as necessary to ensure the reporting of potentially problematic transactions."⁸²

With respect to review periods and timing, ICPAC recommends that merger review should be conducted in a two-phased approach designed to enable enforcement agencies to identify and focus on transactions that raise competitive issues while allowing those that present none to proceed expeditiously.⁸³

ICPAC commends the flexibility of the U.S. pre-merger notification system, which permits filing at any time after the execution of a letter of intent, contract, agreement in principle, or public bid. It also commends the U.S. for concluding their initial review in a maximum of 30 days following notification. The Report recommends, however, that more certainty with respect to time frames is needed for the second-stage review.

ICPAC recommends some form of certainty with respect to review timing, such as fixed time limits, but notes its "concern that maximum time periods would effectively turn into minimum or standard review periods." Because of these concerns, "...the majority of Advisory Committee members eschew strict time frames but recommend instead that alternative steps be taken to provide the greater certainty required for effective transaction planning." ICPAC recommends instead non-binding but notional time frames for second-stage review that vary in relation to the relative complexity of the transaction. The Report cites as the example of such an approach the system adopted in Canada and notes that the five-month period for very complex transactions "coincides with the aggregated five-month review period employed by the EC for mergers that are subjected to second-phase investigations."⁸⁴

In terms of notification forms and information requests, ICPAC recommends that the initial notification require only information necessary to make a preliminary determination of whether a transaction raises competition issues sufficient to warrant further review. The Report further notes that "mechanisms also should be established to narrow the legal and factual issues as early as possible."⁸⁵ The Report suggests that one way to accomplish this goal would be to provide a short-form long-form option, leaving it to notifying parties to choose in the first instance which form to use.

The Report covers the Canadian approach to notification in considerable detail and comments favourably on the option available to choose a short or long form and the availability of advance ruling certificates.

Finally, the ICPAC Report recommends that agencies should assess their performance with respect to those transactions they challenge and those important transactions that are not challenged.

In this regard, it is interesting to note that a post-decision review of the decisions in a number of recent merger cases examined by the U.K. Office of Fair Trading was completed in 1999. According to an article published in the Global Competition Review, a study prepared for the OFT enabled the agency to assess the post-decision market conditions in markets where a proposed transaction was challenged and in others where the transaction was allowed to proceed. Such a study provides an agency with valuable research and feedback on its analysis and decision making.

There is a large amount of work being done internationally to promote international convergence in merger review procedures and to identify and develop best practices in multi-jurisdictional merger reviews. In particular, Working Party No. 3 on International Cooperation ("WP3") of the OECD Competition Law and Policy Committee, in conjunction with the Business and Industry Advisory Council to the OECD, are currently considering possibilities for and mechanisms to promote convergence of merger review procedures. The outcomes from any work in international fora, such as WP3, will be useful in guiding any further work in this area.

II.  International Cooperation

Given the increase in multi-jurisdictional mergers and their increasing complexity, the number of cases involving cooperation between competition agencies rises steadily every year. In addition to the mere increase in the number of shared cases and informal exchanges, the breadth of coordination between agencies has also become more significant. Cooperation now begins earlier in the merger review process, involves more detailed discussion of substantive issues, and often follows through to coordination at the remedial stage.

A corollary to this is that many agencies are also of the view that companies should recognize the value of supporting early cooperation between agencies and attorneys as a means of increasing the possibility of avoiding inconsistent demands and conflicts between two or more agencies.

Cooperation can take place both formally and informally. Although a formal framework is not a prerequisite to cooperation, it can foster communication and coordination between competition authorities.⁸⁶

An increasingly regular practice is for jurisdictions to consult one another to try to come to an agreement on product and geographic market definitions and potential remedies. There are more instances of agencies sharing information and engaging in discussions much earlier in the review process than there have ever been in the past.

In this new global enforcement environment, companies can now expect that "reviewing agencies will cooperate to the fullest extent permitted by law, with or without the parties’ consent. The parties can choose to facilitate this cooperation by waiving confidentiality which in most instances will prove beneficial."⁸⁷

Competition authorities engage in frequent discussions and share non-confidential information. However, many jurisdictions have legislation prohibiting the exchange of confidential information. While the Competition Bureau can exchange confidential information to foreign authorities if doing so is for the purposes of the "administration and enforcement" of the Act, other authorities may require a waiver for a reciprocal exchange of information with the Bureau.

As mentioned above, the ICPAC Report included recommendations to enhance international cooperation in reviews of multi-jurisdictional mergers. The Report states that "cooperation among reviewing agencies could be enhanced if all jurisdictions were to establish a transparent legal framework for cooperation that contains appropriate safeguards to protect the privacy and fairness interests of private parties."⁸⁸

The ICPAC Report recommends the development of protocols to govern cooperation that would include a description of the way the antitrust enforcement agencies conduct crossborder coordinated merger investigations. This, ICPAC suggests, would facilitate further substantive convergence and avoid or minimize divergent analysis and outcomes.

The Report goes on to suggest that "although a great deal of cooperation can take place without the consent of the parties to a transaction, there are limits on the extent to which antitrust enforcers can exchange information and employ other cooperative approaches... One important step in fostering this mutually beneficial cooperation between companies and competition authorities lies in instilling confidence in companies that the jurisdictions receiving confidential information can and will protect that information from disclosure."⁸⁹

Development of such protocols would, the Report suggests, contribute to building that confidence. According to the Report, a protocol should have the following key features:

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• A description of the way in which the antitrust enforcement agencies typically will conduct joint and coordinated merger investigations with antitrust authorities in other jurisdictions;
• a range of model waivers permitting discussions otherwise prohibited by confidentiality laws and authorizing the exchange of statutorily protected information by competition authorities during merger reviews; and
• a model policy statement outlining safeguards established by competition authorities to protect confidential information.

The ICPAC Report provides examples of model waivers and a model policy statement.

In addition, ICPAC recommends frank information exchanges between competition authorities and merging parties as being an important component for effective cooperation.

To quote the Report, "(t)o facilitate quick resolution of potentially problematic transactions deemed worthy of further investigations and focus the issues as soon as possible, there is no substitute for frank information exchange between competition authorities and the parties to a proposed transaction. To that end, each reviewing authority should articulate to the merging parties at the beginning of the second stage inquiry, the competitive concerns that are driving the investigation."

Recently both the U.S. Department of Justice and the Federal Trade Commission committed to providing parties with the outstanding issues at the time of the issuance of a second request and the rationale behind the information sought in the second request. (Refer to Chapter 5 - Merger Review in the United States for additional details.)

In a similar vein, the ICPAC Report pointed to the process in the EU in which parties routinely discuss the information requirements of the Merger Task Force with respect to filling out the Form CO, and the process of negotiating the content of the Form. This provides both sides with the opportunity, before the 30-day legislated time frame, to identify the important issues and focus the review and required information.

Best Practices for International Cooperation

As mentioned earlier, international efforts promoting convergence of merger review procedures are underway in the OECD WP3 to identify and develop best practices in international cooperation in multi-jurisdictional merger review. Notwithstanding such efforts, it is clear, based on the discussions within the Bureau, with officials in other agencies and other stakeholders, as well as certain of the findings in the ICPAC Report, that certain practices can be important for effective international cooperation in reviews of multi-jurisdictional mergers. The following is a non-exhaustive list of some practices considered effective for international cooperation. This list will undoubtedly evolve and expand considerably over the next few years.

1.  Early Identification of Other Reviewing Agencies

In Canada, as part of the notification filing provided to the Bureau, the parties are required to identify other foreign authorities which have been notified of the proposed transaction and the date of the notification. Similarly, the U.S. Federal Trade Commission, as a general practice, requests that merging parties indicate when there are interests in other jurisdictions. In such instances, they regularly request waivers from the parties in order to facilitate discussions with their counterparts. In addition, when the FTC learns that a proposed merger is subject to the EU’s Merger Control Regulation, FTC staff now routinely ask the parties to provide a copy of their Form CO.

2.  Early Notice to Management of Multi-jurisdictional Issues

Another very important issue is for managers and relevant senior officials in the agency to be apprised of all trans-border transactions. Because of experience in this arena, managers are likely to be more cognizant of issues or sensitivities that might influence a transaction or could have other crossborder implications.

3.  Notification

For successful cooperation between competition agencies, it is important for agencies to recognize the important interests of other countries and notify pursuant to the OECD Recommendation or the other cooperation arrangements in place. In addition to formal notifications, however, informal contacts are equally beneficial for cooperation. Whether formally or informally, early and frequent contact between competition agencies is essential.

4.  Exchange of Information

Although a significant amount of non-confidential information can be exchanged between competition agencies, in some cases a confidentiality waiver from the parties will be necessary to allow for more extensive cooperation and permit the exchange of confidential information.

5.  Understanding the Context

It is important to engage the parties in the cooperation process. While the provision of waivers is an obvious instance of the parties’ role in the cooperation process, this role can go beyond the mere exchange of waivers. Agency staff should encourage counsel to make sure that both they and the agency are aware of issues in other jurisdictions that may have an impact on the transaction overall.

6.  Coordination of Information Requests

Many lawyers interviewed pointed to the substantial amount of time required to comply with information requests. When different agencies seek similar information on a given transaction, it takes considerable time to produce it in different formats. The process could be streamlined if information requirements were coordinated to the extent possible by the agencies involved. Similarly, from the perspective of the competition agency, there is a benefit to collaborating with other agencies on the manner in which certain information on a common issue is requested from the parties.

7.  Transparency

There is great value in agencies publicly citing those instances when multi-jurisdiction cooperation has led to successful reviews and merger resolutions. Increased transparency of these types of cases can help improve the understanding of the processes and decisions of other agencies and help enhance cooperation in the future.

Similarly, agencies strongly recommend that staff should disclose to parties that officers may be speaking with other agencies. Disclosing such a fact to the parties at the outset allows parties to be more open and consistent in their responses to agencies.

8.  Jointly Work Towards Acceptable Resolutions

Many examples of successful dialogues between agencies that resulted in timely divestitures in each jurisdiction were mentioned during the interviews. The potential to reach such solutions is enhanced by ongoing conversations as the parties discuss and negotiate with each agency. For example, in the Lafarge/Blue Circle transaction, the Bureau cooperated extensively with the FTC in all aspects of the review, and especially at the remedy stage. In the end, the remedy sought in Canada resolved problems in Canada and the U.S. where concurrent orders are likely to apply over the same assets.

9.  Centre of Expertise on International Cooperation

Staff responsible for an agency’s international cooperation activities should be that agency’s experts in international cooperation and joint enforcement practices. They should be in a position to assist case officers through their knowledge of laws, policies, practices and personnel in other jurisdictions. They should be the "knowledge experts" when it comes to agreements and should advise officers with regard to what information they can and cannot share.

These "knowledge experts" facilitate the development of relationships required for effective international cooperation and should be seen as partners in effective multi-jurisdictional reviews.

Good working relationships between the international group and enforcement officers are essential. Regular formal meetings and appropriate discussions on specific case files help to develop a culture of cooperation.

Chapter 8  Chapter 10