Annual Report of the Commissioner of Competition for the year ending March 31, 2004

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Chapter 4: Reviewing Mergers

The Bureau reviews merger transactions under section 92 of the Competition Act to assess whether a proposed merger is likely to prevent or substantially lessen competition. At the end of an investigation in which the Bureau finds a transaction to be anti-competitive, the Commissioner will ask the merging parties to restructure the merger or suggest remedies to solve particular competition issues. When such problems cannot be resolved by negotiation, the Commissioner may decide to bring an application to the Competition Tribunal, asking it to block the transaction.

The number of mergers the Bureau reviewed decreased in 2003-2004 from the previous year, partially due to the April 1, 2003, increase in thresholds at which the Bureau must be notified of proposed mergers. However, the size and scope of the mergers remained significant, as did the complexity of the competition issues raised.

Transactions are notifiable when the size of the transaction exceeds a certain dollar amount and the size of the parties to the transaction exceeds $400 million. On April 1, 2003, the revised "Fee and Service Standards Handbook" (see page 55) introduced changes in notifiable merger transactions thresholds, with an increase in the size of transaction threshold from $35 million to $50 million and a fee increase for merger notifications and advance ruling certificate requests from $25 000 to $50 000. The party-size threshold remained the same.

International co-operation is critical in merger review of multi-jurisdictional transactions. To the extent possible under the law, the Bureau shares views and information about mergers with other reviewing jurisdictions, coordinates the timing of the review process, and seeks consistent remedies.

In 2003-2004, the Bureau continued to co-operate with foreign agencies, the International Competition Network (see chapter 5 and the Organisation for Economic Co-operation and Development (OECD). The Bureau is working with the OECD's Competition Committee to promote international co-operation in competition enforcement in the area of merger review procedures. In addition, the Bureau also contributed significantly to the International Competition Network's Mergers Working Group.

This chapter contains summaries of some of the major merger cases that were new or ongoing during 2003-2004. In addition, there is an update on the Bureau's review of its merger enforcement guidelines, as well as comprehensive tables of total merger examinations concluded during the year and the current service standards.

Major Merger Cases

Canadian Waste Services Inc. and Browning-Ferris Industries Ltd.

In April 2000, the Bureau challenged Canadian Waste Services Inc.'s acquisition of a southern Ontario landfill, on the grounds that it would likely result in higher prices for customers of waste disposal services in the Greater Toronto Area and Chatham­Kent. Following a contested hearing, the Competition Tribunal ruled in favour of the Bureau and ordered Canadian Waste to sell the landfill. In March 2003, the Federal Court of Appeal dismissed Canadian Waste's appeal, ruling that the Tribunal had specialized expertise in making its findings. The Tribunal's divestiture order went into effect on March 12, 2003. In May 2003, Canadian Waste applied to the Supreme Court of Canada for leave to appeal the appeal court judgment. On January 8, 2004, the Supreme Court of Canada dismissed Canadian Waste's application.

Also in May 2003, Canadian Waste applied to the Tribunal under section 106 of the Competition Act to have the divestiture order varied or rescinded, alleging that circumstances had changed since the order was made. The Tribunal granted a stay of the order until the outcome of a hearing that was held in October and December 2003.¹

General Electric Medical Systems and Instrumentarium Corporation

In March 2003, General Electric Company (GE) sought the Bureau's approval for its acquisition of Instrumentarium Corporation. Both GE and Instrumentarium are major manufacturers and suppliers of patient monitoring equipment. After an extensive examination, the Bureau concluded that the proposed transaction would likely result in significant competition concerns in the market for patient monitors used in high acuity areas of hospitals and other health care facilities in Canada.

To resolve competition concerns in Europe and the United States, GE agreed to divest Instrumentarium's worldwide Spacelabs business, an important supplier of patient monitoring equipment in Canada. GE also provided a formal commitment to the European Commission that it would maintain existing and future interfaces on patient monitors, therapy devices and clinical information systems to ensure that equipment from third-party suppliers could effectively connect with GE equipment. At the Bureau's request, GE confirmed that the European interface agreement applied globally and was available to third-party suppliers in Canada and elsewhere.

These commitments by GE satisfied the Bureau's concerns, and the Bureau issued a no-action letter. In the event that GE fails to adhere to its commitments, the Bureau has the right to make an application to the Competition Tribunal within three years of the merger's substantial completion.

RONA Inc. and Réno-Dépôt Inc.

On April 23, 2003, RONA announced that it had entered into an agreement with Kingfisher plc and its affiliates that would enable it to acquire Réno-Dépôt. Subsequently, the Bureau launched an investigation into this transaction and found that it would likely substantially lessen competition in the consumer home improvement and renovation products market in Sherbrooke, Quebec.

On September 4, 2003, the Bureau filed a consent agreement with the Competition Tribunal to address the competition problems. The consent agreement provides for the divestiture of the Réno-Dépôt store in Sherbrooke, subject both to Bureau approval and the store being sold to a buyer who intends to operate it principally for the retail sale of renovation and home improvement products and who has the financial and operational capability to manage the business.

At the end of February 2004, RONA had not sold the Sherbrooke store, and a trustee was appointed to carry out the sale. The agreement stipulated that, in the meantime, the Réno-Dépôt store would continue to operate as a distinct entity from RONA.

Alcan Inc. and Pechiney

In July 2003, Alcan Inc., a global leader in aluminium and fabricated aluminium, as well as in flexible and specialty packaging, proposed acquiring France's Pechiney, S.A., the world's fifth largest aluminium and packaging group. In October 2003, after a thorough review, the Bureau concluded that the acquisition of Pechiney by Alcan, combined with certain commitments made by Alcan, would not likely prevent or substantially lessen competition. In its review, the Bureau primarily examined the North American market, but also looked at the global market for aluminium production technology. While Alcan had extensive assets in Canada, Pechiney did not control any physical assets in Canada that overlapped with Alcan's.

The Bureau co-operated closely with the U.S. Department of Justice and the Merger Task Force of the European Commission in its review of this transaction. To resolve international competition concerns, Alcan agreed to divest Pechiney's aluminium rolling facility in Ravenswood, West Virginia, and other rolling mills in Europe. Alcan also made commitments to the European Commission about alumina refining technology, aluminium smelter cell technology and anode baking furnace designs. The Bureau determined that these measures would preserve competition in Canada as well.

Maple Leaf Foods Inc. and Schneider Corporation

On September 25, 2003, Maple Leaf Foods announced its intention to acquire the shares of Smithfield Canada Limited and its subsidiary Schneider Corporation. At the time of the announcement, Maple Leaf and Schneider were among the largest meat processors in Canada. After a thorough review, the Bureau announced on March 30, 2004, that it would not challenge the acquisition before the Competition Tribunal.

The Bureau carefully examined the merger's impact on various aspects of the food processing business, focussing particularly on hog procurement and primary pork processing in western Canada as well as processed meats (bacon, wieners and sliced meats). While the Bureau identified some concerns in the wiener market, it concluded that the evidence at this time did not support a challenge before the Competition Tribunal.

Canadian National Railway Company and the British Columbia Rail Limited

On November 25, 2003, Canadian National Railway Company (CN) and the Government of British Columbia announced that CN would be acquiring the outstanding shares of British Columbia Rail Limited (BC Rail), along with a very long-term lease to operate on BC Rail's roadbed. BC Rail, Canada's third largest railway, operates more than 2315 km of main line within British Columbia, from North Vancouver in the south to Fort Nelson in the north. CN's British Columbia rail network, which consists of approximately 2000 km of track, connects with the BC Rail network at North Vancouver and Prince George.

As of March 31, 2004, the Bureau's examination of this proposed transaction was ongoing.²

Canfor Corporation and Slocan Forest Products Ltd.

On March 31, 2004, the Bureau filed a consent agreement with the Competition Tribunal resolving competition concerns arising from Canfor Corporation's acquisition of Slocan Forest Products Ltd. The agreement requires Canfor, the largest softwood lumber producer in Canada, to divest its Fort St. James, British Columbia, sawmill, located north of Prince George.

The Bureau concluded that the transaction would have resulted in less choice for log sellers, wood re-manufacturers and wood-chip sellers in the Prince George area.

The consent agreement provides that should Canfor be unable to divest the Fort St. James sawmill, a trustee would be appointed to do so.

Transcontinental Inc. and Optipress Inc.

Transcontinental Inc., one of the major publishing and printing houses in North America, proposed acquiring Optipress Inc., one of the major community and weekly newspaper publishing and printing enterprises in Atlantic Canada. Transcontinental, which has a strong presence in the Atlantic provinces through a chain of daily newspapers and printing plants, argued that Optipress's community papers and printing assets would complement Transcontinental's operations. Following a thorough review, the Bureau announced on January 16, 2004, that it found no significant competitive overlap and consequently did not challenge the transaction.

Sherritt et al. and Fording Inc.

In January 2003, Sherritt Coal Partnership II and Fording Inc. announced a multi-party agreement to combine certain assets of Fording Inc., Teck Cominco Limited, Luscar Ltd. and CONSOL Energy Inc. in the thermal coal, metallurgical coal and coal terminal port businesses in Canada.

The Bureau announced on April 15, 2003, that it would not challenge this combination of assets. After carefully examining the merger's impact on various aspects of the coal industry and obtaining input from customers, competitors and an independent industry expert, the Bureau concluded that the consolidation would not likely prevent or substantially lessen competition in the relevant markets.

Great-West Lifeco Inc. and Canada Life Financial Corporation

On February 17, 2003, Great-West Lifeco Inc. announced it had entered into an agreement with Canada Life Financial Corporation to acquire 100 percent of the latter's outstanding common shares. The Bureau focussed its analysis of the proposed merger on six areas: individual life insurance, individual health insurance, group life and health insurance, wealth management, group pensions, and commercial mortgages. Through its investigation, the Bureau determined that the transaction was not likely to prevent or substantially lessen competition in any relevant market.

Manulife Financial Corporation and John Hancock Financial Services Inc.

On September 28, 2003, Manulife Financial Corporation announced its acquisition of John Hancock Financial Services Inc. The Bureau focussed its analysis of the proposed merger on four areas: individual health insurance, group life and health insurance, individual wealth management and group pensions. Through its investigation, the Bureau determined that the transaction was not likely to prevent or substantially lessen competition in any relevant market.

Sobeys Inc. and Commisso's

In December 2003, Sobeys, the second largest food wholesaler-retailer in Canada after Loblaw Companies Limited, proposed acquiring Commisso's, a regional chain of 16 grocery stores with a wholesale division, located primarily in the Niagara Peninsula. The Bureau's review found that the proposed transaction would not prevent or substantially lessen competition in any relevant market.

Merger Enforcement Guidelines

Since their release in 1991, the Merger Enforcement Guidelines (MEGs) have been a useful tool, outlining the basic analytical framework for merger review in Canada. Given legal and economic developments since 1991, an update was required to ensure the MEGs remain current and as useful as possible. Consequently, in early 2004, the Bureau re-drafted the MEGs and in March 2004, released a draft revised version for public comment. The Bureau will issue the MEGs in final form after consultation with members of the legal community, the academic community, foreign competition authorities and other interested parties.

Bank Merger Enforcement Guidelines

Published in 1998, the Bank Merger Enforcement Guidelines (BMEGs) set out the Bureau's analytical framework for assessing the competitive effects of a merger involving two or more banks. In June 2003, the Government issued its response to two House of Commons and Senate Committee reports, "Large Banks Mergers in Canada: Safeguarding the Public Interest for Canadians" and "Canadian Businesses and Competition in the Public Interest: Large Bank Mergers in Canada", respectively, with the following recommendation, among others: "In light of the work of the two committees and developments in recent years in Canada and abroad, the Government is asking the Competition Bureau to review the BMEGs."

As a result, the Bureau consulted stakeholders in the fall of 2003 and sought public comment on the revised BMEGs in February 2004. All submissions were made available to the public and posted on the Bureau's Web site (www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/01355.html), except when confidentiality was specifically requested. The Bureau will review the comments received and publish the revised document in 2004.

Service Standards

Merger Examinations, 2003-2004

Examinations Commenced1	202
Notifiable Transactions	53
Advance Ruling Certificate Requests2	159

¹. Includes notifiable transactions, advance ruling certificates and examinations commenced for other reasons, but not ongoing examinations from the previous fiscal year.

^2. Total number of notifiable transactions with advance ruling certificate requests exceeds the number of examinations commenced because in many instances a long or short form notification was filed along with a request for an advance ruling certificate.

Examinations Concluded1	215
No Issue Under the Act	202
Advance Ruling Certificates Issued2	138
Agreed Remedies	6
Consent Orders/ Registered Consent Agreements3	3
Contested Proceedings4 (A)	1
Parties Abandoned Proposed Mergers in Whole or in Part as a Direct Result of the Commissioner?s Position	1
Proposed Mergers Abandoned For Other Reasons	5

¹ If a transaction has a notification as well as an advance ruling certificate, it is only counted once. This number also includes advance ruling certificates and matters that have been concluded or withdrawn before the Competition Tribunal.

² Advance Ruling Certificates Issued are a subset of the Posing No Issue Under the Act category and have only been counted once in Examinations Concluded.

³ Consent Orders and Registered Consent Agreements are a subset of the With Agreed Remedies category and have only been counted once in Total Examinations Concluded.

⁴ Year completed.

^(A) Canadian Waste Services and Browning-Ferris: Supreme Court dismissed Canadian Waste Services' leave to appeal with costs (January 2004).

Total Examinations During the Year	229
Total Examinations Concluded	215
Examinations Ongoing at Year-End	14
Advisory Opinions Issued	0
Section 92 Matters Before the Tribunal and the Courts1	4
Ongoing at Year-End	0
Concluded2 or Withdrawn (B)	4

¹ Includes applications for consent orders and consent agreements.

² "Concluded" means that the Competition Tribunal or the courts issued an order or decision, and there were no further appeals.

^(B) Cases concluded: Canadian Waste/Browning-Ferris, Pfizer/Pharmacia, Rona/Réno-Dépôt, Canfor/Slocan.

Other Tribunal Proceedings1	1
Ongoing at Year-End (C)	1
Concluded2 or Withdrawn	0

¹ Includes section 106 applications.

² "Concluded" means that the Competition Tribunal or the courts issued an order or decision, and there were no further appeals.

^(C) Waste: section 106 application.

Breakdown of Mergers by Year, 2000-2004

Business Line	2000-2001	2001-2002	2002-2003	2003-2004
Pre-merger Notification Filings *	73	59	28	22
Advance Ruling Certificate Requests	255	243	224	159
Other Examinations	45	26	27	21
Total Mergers	373	328	279	202

^{* Excludes notification filings for which advance ruling certificates were also requested. The figure in the Total Mergers row represents the total number of examinations commenced during the fiscal year.}

Note: On April 1, 2003, the size of transaction threshold was increased from $35 million to $50 million. This resulted in fewer filings. As a result, the 2003-04 year is not directly comparable to prior years.

Merger Review: Meeting Service Standards

Complexity	Service Standard	Number of Transactions April 2003 to March 2004	Service Standard Met
Non-complex	14 days	165	164     (99.4%)
Complex	10 weeks	18	17      (94.4%)
Very Complex	5 months	2	2    (100.0%)
Total		185	183     (98.9%)

Meeting Service Standard Targets, April 1, 2003 to March 31, 2004

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Footnotes

¹ On June 28, 2004, the Tribunal dismissed Canadian Waste's application, with costs to the Commissioner. On July 21, 2004, Canadian Waste commenced an appeal in the Federal Court of Appeal. It also sought a stay of the divestiture order, pending determination of the appeal.

² On July 2, 2004, the Competition Bureau filed a consent agreement with the Competition Tribunal that addressed the Bureau's concerns.