Annual Report of the Commissioner of Competition for the year ending March 31, 2003

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Reviewing Mergers

The sluggish global economy combined with worldwide political uncertainty in 2002-2003 resulted in a decrease in the number of mergers the Competition Bureau reviewed, although the size, scope and complexity of competition issues continued to be significant. Increased international cooperation between the Bureau and other competition agencies helped to strengthen the Bureau's handling of these mergers.

Merger Enforcement Guidelines

Since their first release in 1991, the Merger Enforcement Guidelines have been a useful tool for setting out the basic analytical framework for merger review in Canada. In early 2003, the Bureau began a project to update the Guidelines to reflect changes in case law and other developments that have occurred over the last 10 years. The project will focus on updating all sections of the Guidelines except Part V, which is no longer in effect. Throughout the project the Bureau will seek input from members of the legal community, academics, foreign competition authorities and other interested parties.

Publication of Interpretation Guideline No. 3

On December 20, 2002, following extensive consultations with Bureau staff, experts and stakeholders, the Bureau published the final version of Interpretation Guideline No. 3, Paragraph 111(a): Exemptions for Acquisitions in the Ordinary Course of Business. This guideline clarifies the application of paragraph 111(a) of the Competition Act, which exempts from notification to the Bureau transactions involving acquisitions of real property or goods in the ordinary course of business when the person proposing to acquire the assets would not hold all or substantially all of the assets of a business or of an operating segment of a business as a result of the acquisition.

Stakeholder Feedback

The Bureau receives stakeholder feedback on mergers, not only through consultations and meetings, but also via feedback cards that parties complete and return (27 percent of parties responded in 2002-2003, compared to 34 percent in 2001-2002, 18 percent in 2000-2001 and 25 percent between 1997 and 1999).

On January 23, 2003, the Bureau hosted members of the Canadian Bar Association's mergers sub-committee for discussions on a variety of issues related to the Bureau's merger review practices and procedures. Discussion topics during this full-day session included the merger notification process, service standards, case complexities, section 11 orders, and voluntary returns of information. The Bureau proposed creating a working group to discuss merger notification issues and to provide further guidance to business in this area. The idea was well received and the working group has since been established. The Bureau also participates in periodic conference calls with the sub-committee.

Merger Examinations, 2002-2003

	2002/2003
Examinations Commenced Includes notifiable transactions, advance ruling certificates and examinations commenced for other reasons, but not ongoing examinations from the previous fiscal year Total number of notifiable transactions together with advance ruling certificate requests exceed 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	279
Notifiable Transactions	85
Advance Ruling Certificate Requests	224
Examinations Concluded1
Posing No Issue Under the Act	257
Advance Ruling Certificates Issued	163
With Agreed Remedies2	6
Consent Orders/Registered Consent Agreements	3
Through Contested Proceedings3	1
Parties Abandoned Proposed Mergers in Whole or in Part as a Direct Result of the Commissioner's Position	0
Proposed Mergers Abandoned for Other Reasons	3
Total Examinations Concluded4 Includes advance ruling certificates and matters that have been concluded or withdrawn before the Competition Tribunal	267
Examinations Ongoing at Year End	27
Total Examinations During the Year	294
Advisory Opinions Issued	0
Section 92 Matters Before the Tribunal and the Courts Includes applications for consent orders and consent agreements	5
Ongoing at Year End	1
Concluded5 or Withdrawn	4

Correction: In the fiscal year 1999-2000, the number of transactions Posing No Issue Under the Act should have been 328 with the removal of asset securitizations, not 392 as reported.

Breakdown of Mergers by Year, 1999-2003

Business Line	1999-2000	2000-2001	2001-2002	2002-2003
Pre-merger Notification Filing*	92	73	59	28
Advance Ruling Certificate Request	273	255	243	224
Other Examinations	60	45	26	27
Total Mergers	425	373	328	279
Total	361	373	328	279

^{*Excludes notification when an advance ruling certificate was requested.}

Note: The figure in the Total Mergers row represents the total number of examinations commenced during the fiscal year.

Merger Review: Meeting Service Standards

Number of Transactions

Complexity	April 1998 to March 1999	April 1999 to March 2000	April 2000 to March 2001	April 2001 to March 2002	April 2002 to March 2003
Not Complex	212	232	282	271	215
Complex	56	49	52	41	21
Very Complex	6	8	14	2	2
Total	274	289	348	314	238

 

Service Standards

Complexity	Target	April 1998 to March 1999 Met	April 1999 to March 2000 Met	April 2000 to March 2001 Met	April 2001 to March 2002 Met	April 2002 to March 2003 Met
Not Complex	14 days	187   88.2%	218   94.0%	270   95.7%	258   95.2%	213   99.1%
Complex	10 weeks	854   96.4%	43     87.6%	48     92.3%	36     87.8%	20     95.2%
Very Complex	5 months	6     100.0%	7       87.5%	14   100.0%	2     100.0%	2     100.0%
Total		247   90.1%	268   82.7%	332   95.4%	296   94.3%	235   98.7%

Meeting Service Standards Targets, April 1, 2002 to March 31, 2003

Major Merger Cases

The following are summaries of some of the new and ongoing major merger cases in 2002-2003.

Superior Propane Inc. and ICG Propane Inc.

In December 1998, the Bureau challenged Superior Propane's acquisition of ICG Propane Inc. In August 2000, the Competition Tribunal found that the merger would create a monopoly in many local markets, and would also have negative consequences for consumer choice, service and price throughout Canada. The Tribunal ultimately allowed the merger to proceed because a majority of Tribunal members found that the efficiencies the merger generated would be greater than its anti-competitive effects. The Bureau subsequently appealed the Tribunal's decision, asking the Federal Court of Appeal to review the Tribunal's interpretation of the efficiencies defence.

On April 4, 2001, the Federal Court of Appeal ruled that the Tribunal's interpretation of section 96 should have considered a wider range of effects and had regard for the purposes of the Competition Act (set out in section 1.1). The matter was remitted to the Tribunal for a redetermination hearing.

On April 4, 2002, the Competition Tribunal dismissed the Commissioner's application. The Commissioner appealed this decision to the Federal Court of Appeal on the grounds that the Tribunal:

• erred by not including all the effects of lessening of competition, including the entire wealth transfer;
• refused to consider the effects from a qualitative perspective;
• adopted a restrictive view of the effect of the merger on small and medium-sized businesses;
• did not consider the creation of a monopoly per se as an anti-competitive effect in the subsection 96(1) analysis;
• did not respect the judgment of a higher court; and
• erred in its allocation of the onus of proof.

On January 31, 2003, the Federal Court of Appeal dismissed the Commissioner's application and accepted the Tribunal's methodology. The dissenting opinion held that subsection 96(1) did not authorize the creation of monopolies. On March 31, 2003, the Bureau announced that it would not appeal the Federal Court's decision.

Astral Media Inc. and Telemedia Radio Inc.

On December 21, 2001, the Bureau challenged Astral Media Inc.'s proposed acquisition of Telemedia Radio Inc.'s French-language radio stations and 50 percent interest in Radiomédia. In its application to the Competition Tribunal, the Bureau argued that this acquisition would substantially lessen competition in six radio advertising markets in Quebec.

The merging parties filed a motion with the Federal Court of Canada challenging the Bureau's jurisdiction over the proposed transaction. The Federal Court's Trial Division heard this matter in May 2002 in Montréal. However, a consent agreement filed on September 3, 2002, resolved the Commissioner's competition concerns with this merger.

The consent agreement included the following:

• the divestiture of the parties' AM radio stations in all six relevant markets (these stations were immediately placed under the control of an operating trustee until the completion of the divestitures);
• the implementation of a code of conduct protecting advertisers in the French-language radio advertising markets of Gatineau-Ottawa, Sherbrooke, Trois-Rivières and Chicoutimi-Jonquière (Ville de Saguenay) until two years after a new FM station begins broadcasting in these markets or 42 months, whichever occurs first, and protecting advertisers in Montréal and Quebec City until the required divestitures are completed; and
• the appointment of an independent manager to control the local sales force of the Telemedia FM radio stations in Gatineau-Ottawa, Sherbrooke, Trois-Rivières and Ville de Saguenay, until six months after a new FM radio station begins broadcasting in these markets or 42 months, whichever occurs first.

A new French-language FM station began broadcasting in Gatineau-Ottawa on September 23, 2002.

In compliance with the consent agreement, Astral proposed to sell the AM radio stations and CFOM-FM in Quebec City to a company jointly controlled by TVA Inc. (60 percent) and Radio Nord Communications Inc. (40 percent). The Commissioner approved this plan on October 18, 2002.

As of March 31, 2003, the CRTC was still reviewing the application seeking approval for the proposed transfers of licences and the various applications for new licences in Sherbrooke, Trois-Rivières, Ville de Saguenay and Montréal.

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 Chatham-Kent.

Following a contested hearing in November 2000, the Competition Tribunal ruled in favour of the Bureau's position in March 2001. The Tribunal held a three-day hearing in June 2001 to determine the appropriate remedy and accepted the Bureau's proposal on October 11, 2001, ruling that Canadian Waste must divest itself of the landfill in question.

In November 2001, Canadian Waste appealed both the March and June 2001 decisions, and the Tribunal's divestiture order was stayed pending the outcome of the appeals.

Following a hearing in March 2003, the Federal Court of Appeal dismissed Canadian Waste's appeals, ruling that the Tribunal had specialized expertise in making its findings. On March 12, 2003, the Tribunal's divestiture order came into effect.

While the divestiture process is taking place, the landfill will be held separately from Canadian Waste's other operations and will be managed by an independent manager who will be supervised by an independent monitor.

United Grain Growers Limited and Agricore Cooperative Ltd.

In July 2001, two of the largest grain-handling companies in Western Canada, United Grain Growers Limited (UGG) and Agricore Cooperative Ltd. announced they would merge into Agricore United. The Bureau advised the parties that the proposed transaction would substantially lessen competition in grain-handling services at the Port of Vancouver and in certain grain-handling markets in Manitoba and Alberta.

In response to the Bureau's concerns, Agricore United agreed to divest up to seven primary grain handling elevators in western Canada. On December 17, 2001, the Bureau filed an application with the Competition Tribunal for a consent order requesting the divestiture of primary grain elevator assets in the Dauphin, Manitoba, and Edmonton and Peace River, Alberta, areas. In February 2002, the Tribunal issued a consent order, requiring the elevators to be divested, a process that has been substantially completed.

The Bureau also challenged UGG's acquisition of Agricore's port terminal assets at the Port of Vancouver, requiring Agricore United to divest either the Pacific port terminal or the UGG port terminal. Agricore United took the position that a divestiture of only a part of the Pacific terminal was necessary. On January 15, 2002, the Tribunal issued an order requiring Agricore United to maintain the competitive viability of the grain-handling terminals at the Port of Vancouver pending the outcome of the contested portion of this transaction. After a hearing on September 12, 2002, the Tribunal found that the acquisition did substantially lessen competition.

A contested hearing was scheduled to start on October 21, 2002, in Vancouver to determine the appropriate remedy in the Port of Vancouver. However, on October 17, 2002, the Bureau announced that it had reached an agreement with Agricore United to divest either the UGG or Pacific grain-handling terminal in the Port of Vancouver. A consent agreement reflecting the settlement was registered with the Tribunal thereby terminating the Tribunal remedy proceedings. The Vancouver grain terminal divestiture process is ongoing.

Bayer AG and Aventis CropScience

On July 19, 2002, the Competition Tribunal issued a consent order to remedy competition concerns raised by Bayer AG's acquisition of Aventis CropScience. It required Bayer AG to divest three key agricultural chemical products and to license a fourth in its crop protection division. The Tribunal had issued an interim consent order on June 6, 2002, to ensure that the designated assets were separated and managed independently from Bayer's other business operations.

On January 21, 2003, the Bureau announced that Bayer AG had complied with the provisions of the consent order, and the Bureau approved the following divestitures:

• Arvesta Corporation would acquire certain assets of the flucarbazone business (including Everest, a spring wheat herbicide);
• BASF AG would acquire certain assets of the triticonazole business (including Charter, a cereal seed treatment); and
• Nippon Soda Co. Ltd. would acquire certain assets of the acetamiprid business, including a licence for Iprodione. In partnership with a Canadian licensee, Nippon would then be able to manufacture and develop Assail, a fruit and vegetable insecticide, and Assail ST, a canola seed treatment.

These divestitures ensure competitive prices for distributors and farmers in the Canadian pesticides industry. The consent order was notable for certain "crown jewel" provisions included to ensure the success of the divestitures and to remedy the competition concerns identified by the Bureau.

Close coordination with the U.S. Federal Trade Commission and the Merger Task Force of the European Commission ensured appropriate and consistent remedies.

Abitibi-Consolidated Inc. and Donohue Inc.

Abitibi-Consolidated's acquisition of Donohue in 2000 raised Bureau concerns that this $7.1-billion merger would substantially lessen competition in the supply of newsprint in eastern Canada. To address the Bureau's competition concerns, Abitibi agreed to divest its Port-Alfred newsprint mill in Quebec. Due to a depressed market for newsprint, Abitibi was unable to sell the mill and agreed to a consent order providing for an agent sale of the mill on February 21, 2002. The agent sale process was handled by Deloitte & Touche Corporate Finance Canada Inc., which was also unable to find a buyer for the mill before the conclusion of the sale period in September 2002. As a result, the mill remained the property of Abitibi.

Famous Players Inc. and Galaxy Entertainment Inc., and Onex Corporation and Loews Cineplex/Cineplex Odeon Corporation

In the course of reviewing Onex Corporation's proposed restructuring of Loews Cineplex, the Bureau learned that Onex Corporation's Galaxy Entertainment Inc., with movie theatres in five provinces, had previously merged with Famous Players, Canada's largest exhibitor. Following discussions in April 2002 about the Bureau's concerns regarding the links between Famous Players, Cineplex Odeon and Galaxy, Famous Players agreed to divest its interest in Galaxy, end its representation on Galaxy's board of directors and terminate all ancillary agreements.

Diageo plc, Pernod Ricard SA and The Seagram Company Ltd.

On October 4, 2002, Diageo plc completed the sale of its Gibson's Finest brand of Canadian whisky and related assets to William Grant & Sons Limited. The divestiture was required as part of an agreement with the Bureau, announced in October 2001, to address competition concerns.

Following a thorough review of the acquisition of Seagram's spirit and wine business by Diageo and Pernod Richard, the Bureau concluded that the Diageo purchase of Seagram's Canadian whisky brands, which included Crown Royal and Seagram's VO, would likely have substantially lessened competition in the supply of premium Canadian whisky products in several provinces. The purchase of Gibson's Finest brand by Grant, an international spirits company with no presence in the Canadian whisky market, should help to ensure that the market for premium Canadian whisky remains competitive.

Pfizer Inc. and Pharmacia Canada Inc.

On April 11, 2003, the Bureau registered a consent agreement with the Competition Tribunal to remedy the competition concerns arising from the acquisition of Pharmacia Canada Inc. and its foreign parent by Pfizer Inc.

The Bureau concluded that the transaction would substantially prevent competition in the market for pharmaceutical products used in the treatment of human sexual dysfunction. To remedy these concerns, the parties agreed to terminate a collaboration and licence agreement between Pharmacia and Nastech Pharmaceuticals Inc. involving a developmental intranasal apomorphine, and to divest another pipeline product to Neurocrine Biosciences Inc. These divestitures ensured the continued development of these products for eventual introduction into a Canadian market currently dominated by Pfizer's product, Viagra.

The Bureau also determined that the transaction would substantially prevent competition in the market for pharmaceutical products that treat overactive bladder problems. To remedy these concerns, the parties agreed to divest Pfizer's developmental product, Darifenacin, to Novartis Pharma AG. The current market leader in Canada is Pharmacia with its products, Detrol and Unidet.

During the review process, the Bureau communicated regularly with the U.S. Federal Trade Commission and the Merger Task Force of the European Commission to ensure consistent remedies.

Reitmans (Canada) Limited and Shirmax Fashions Ltd.

Reitmans (Canada) Limited's acquisition of Shirmax Fashions Ltd., a competitor retailer in plus-size ladies apparel, raised concerns that access to retail space in shopping centres would be negatively affected. In response, Reitmans agreed not to enforce restrictive clauses in more than 100 leases, nor to enter into leases that would exclude competitors during the subsequent three years. With these undertakings, the Bureau concluded that competition would not be substantially lessened as a result of the proposed merger.

Canadian National Railway Company and the Ontario Northland Railway

On October 18, 2002, Canadian National (CN) announced that it had been selected by the Ontario government over three other candidates to acquire Ontario Northland Railway (ONR). Since then, the Ontario Northland Transportation Commission, owner of ONR, and CN have been negotiating the final terms and conditions associated with this proposed transaction. ONR owns and provides freight and passenger transportation services over approximately 700 miles of rail track in northeastern Ontario. CN's rail network connects with the ONR regional network at Hearst and North Bay, Ontario, and Rouyn-Noranda, Quebec. At the end of 2002-2003, the Bureau was examining this proposed transaction.⁶

Budget Group Inc. and Cendant Corporation

In November 2002, the Bureau announced that it had come to an agreement with Cendant Corporation, the U.S. parent company of Aviscar Inc. (Avis) to resolve competition concerns arising from its acquisition of Budget Rent A Car of Canada Limited. This agreement included a restriction on the sharing of competitively sensitive information between Budget and Avis to preserve competition in Canada's car rental business and to maintain the independence of Budget's Canadian franchisees from Cendant's control.

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Footnotes

¹ If a transaction has a notification as well as an advance ruling certificate, it is only counted once.

² This category replaces the With Pre-closing Restructuring and With Post-closing Restructuring and Undertakings categories of previous annual reports.

³ Year completed.

⁴ Consent Orders/Registered Consent Agreements are a subset of the With Agreed Remedies category and have only been counted once in the Total Examinations Concluded row. Advance Ruling Certificates Issued is a subset of the Posing No Issue Under the Act category, and they have only been counted once in the Total Examinations Concluded row.

⁵ Concluded means that the Competition Tribunal or the courts issued an order or decision, and there were no further appeals.

⁶ On June 2, 2003, CN announced that it terminated negotiations with the Ontario government to acquire ONR.