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Annual Report of the Commissioner of Competition for the year ending March 31, 2002


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Reviewing Mergers

Between 1995 and 2001, the mergers the Competition Bureau reviewed increased significantly in number, complexity and international scope. While it was expected that this trend would continue during 2001-2002, the events of September 11 and the subsequent downturn in the economy resulted in a significant decrease in business activity. Consequently, the number of mergers and acquisitions the Bureau analyzed fell significantly in the last half of 2001. While there was some increase in activity in early 2002, the future remains uncertain.

Changes to Competition Tribunal Procedures

Bill C-23, now called An Act to Amend the Competition Act and the Competition Tribunal Act, S.C. 2002, c. 16, came into force on June 21, 2002. It contains provisions that improve the Competition Tribunal's merger process. The Bureau and parties to a proposed merger are able to immediately register consent agreements without a hearing, saving costs and time.¹ The provisions are expected to lead to the Bureau relying more on registered consent agreements, resulting in fewer undertakings.

Merger Notification Unit

In October 2000, the Bureau established the Merger Notification Unit to administer Part IX of the Competition Act. This unit improves procedural streamlining and merger review for non-complex transactions, ensures more consistent application of the complexity rating and corresponding service standard periods within which a merger review should be completed, and centralizes communications to stakeholders about notification and policy issues.

In January 2001, unit staff met with competition lawyers in Montréal, Ottawa, Toronto, Calgary and Vancouver. As a result of these successful sessions, the two groups plan to meet regularly to discuss policies, procedures and legal developments relating to merger notification.

Further information about the Merger Notification Unit and merger notification can be found on the Bureau's Web site.

Merger Forum

On June 28, 2001, the Bureau hosted a forum on mergers for key stakeholders. The forum had two objectives:

to present and obtain feedback on a report outlining the Mergers Branch's performance since the previous forum in 1999
to obtain the views of stakeholders on the merger benchmarking study and the resulting Merger Review Benchmarking Report, which the Bureau released in 2001. The Bureau undertook the study to improve the merger review process by linking the best practices at home with those of stakeholders and competition agencies around the globe. The Bureau received valuable suggestions about process improvements that have been or may be incorporated into the merger review process.

Forum participants provided input that will bring about additional improvements in the merger review process, including the following.

Electronic tools and processes are being integrated into the overall review process to streamline operations and improve internal and external information sharing.
Training and development needs, key findings of the benchmarking study, will be addressed as part of the Bureau's Learning Continuum, a learning, retention and renewal strategy launched in 2001-2002.

Stakeholder Feedback

Mergers Branch receives stakeholder feedback, not only through the Merger Forum and other meetings, but also on feedback cards that parties return and complete (34 percent of parties in 2001-2002, compared to 18 percent in 2000-2001 and 25 percent between 1997 and 1999).

Case Summaries

The following are summaries of some of the major cases the Bureau commenced or that were ongoing during 2001-2002.

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

In March 2000, Canadian Waste Services Inc., which owned six landfills in southern Ontario, acquired the Ridge landfill in Chatham from Browning-Ferris Industries Ltd. On April 26, 2000, the Bureau filed an application with the Competition Tribunal challenging this purchase 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 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 proposed remedy on October 11, 2001, ruling that Canadian Waste must divest itself of the Ridge landfill.

Canadian Waste is appealing both the March and June 2001 decisions, and filed a notice of appeal with the Federal Court of Canada in November 2001. The hearing is expected to take place in the fall of 2002.

Superior Propane Inc. and ICG Propane Inc.

In December 1998, the Bureau challenged the acquisition of ICG Propane Inc. by Superior Propane Inc. Hearings were held before the Competition Tribunal in late 1999 and early 2000. In August 2000, the 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. In Atlantic Canada, the Tribunal found that the merger would substantially lessen competition. The Tribunal ultimately allowed the merger to proceed, however, because a majority of Tribunal members found that the efficiencies the merger generated would be greater than and offset the 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 3, 2001, the Court accepted the Bureau's position that the Tribunal interpretation of the Competition Act was too narrow in this case, set aside the Tribunal's interpretation of the efficiencies defence and sent the matter back to the Tribunal. Superior Propane then unsuccessfully applied to the Supreme Court of Canada for leave to appeal the Federal Court's decision.

The Tribunal held the re-determination hearing in October 2001.²

Abitibi-Consolidated Inc. and Donohue Inc.

In February 2000, Abitibi-Consolidated Inc. announced its intention to acquire Donohue Inc. for approximately CAN$7.1 billion, thereby significantly increasing the size of the world's largest newsprint maker. After a thorough review, the Bureau concluded that the proposed merger would likely substantially lessen competition in the supply of newsprint in eastern Canada.

In February 2001, Abitibi provided an undertaking to the Bureau that it would divest itself of its Port-Alfred mill in Quebec, along with all the assets necessary for its continued operation. This undertaking gave the Bureau the right to apply to the Competition Tribunal for a consent order to formalize the agreement should the mill not be sold following Abitibi's sale process.

Abitibi did not divest the Port-Alfred mill within the sales period specified in the undertaking. Consequently, on December 17, 2001, the Bureau appointed Deloitte & Touche Corporate Finance Canada Inc. to act as the agent for the divestiture. On February 21, 2002, the Tribunal granted the consent order, and the agent is currently performing its mandate under this order.

Chapters Inc. and Trilogy Retail Enterprises L.P.

On April 18, 2001, with the consent of Indigo and Chapters, the Bureau applied to the Competition Tribunal for a consent order concerning the acquisition of Chapters Inc. by Trilogy Retail Enterprises L.P. The purpose of the order was to resolve the competition concerns raised by the proposed merger of Chapters, the dominant book retailer in Canada, with its rival Indigo Books & Music. The Tribunal issued the consent order on June 6, 2001.

On April 5, 2001, the Bureau had reached an agreement with Chapters, Trilogy and Indigo on a package of measures addressing its competition concerns. These included offering for sale 13 large-format book superstores, 10 mall stores, a distribution centre, certain of Indigo's on-line assets, and up to three store brands (SmithBooks, Classic Books and Prospero). To facilitate new entry and expansion of competitors, the consent order also limits the use of restrictive covenants that would preclude other book outlets from operating in the same malls and shopping centres, and restricts Chapters/ Indigo's growth. In addition, Chapters, Indigo and publishers' associations agreed to a code of conduct enforceable by arbitration that sets minimum standards of trade between the merged company and publishers for five years. The Competition Tribunal approved these measures and made them part of its June 2001 binding order.

The Bureau concluded that without these remedies the proposed merger would prevent or substantially lessen competition in the purchase and retail sale of English-language trade books in Canada for both consumers and publishers.

For a variety of reasons, including the economic climate at the time, the stores did not sell. However, other provisions of the order that, for instance, restrict the growth of Chapters/Indigo, will continue to remain in force for five years.

Astral Media Inc. and Telemedia Radio Inc.

On December 21, 2001, the Bureau filed an application with the Competition Tribunal to challenge the proposed acquisition by Astral Media Inc. of eight French-language radio stations owned and operated by Telemedia Radio Inc. in Quebec, and of the 50 percent interest held by Telemedia in Radiomédia.

After reviewing the issue, the Bureau concluded that the proposed merger would likely prevent or substantially lessen competition in six markets. By acquiring the eight Telemedia stations, Astral would have a near monopoly in French-language radio advertising in four markets (Gatineau-Ottawa, Sherbrooke, Trois-Rivières and Chicoutimi-Jonquière) and substantial control over French-language radio advertising markets in Montréal and Quebec City.

The remaining part of the proposed transaction, primarily Astral's acquisition of Telemedia's radio stations in the Maritimes, did not raise competition concerns.

On April 15, 2002, the Competition Tribunal extended the deadline for response to the Bureau's application because 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 on May 13 and 14, 2002, in Montréal.

Lafarge S.A. and Blue Circle Industries PLC

On June 15, 2001, the Bureau applied to the Competition Tribunal for a draft consent order calling for unprecedented divestitures to implement its April 11 agreement with Lafarge S.A.

The divestitures were part of a package to resolve competition concerns arising from the proposed acquisition by Lafarge S.A. of Blue Circle Industries PLC. The Canadian subsidiaries of the merging parties are the two largest cement and related construction material suppliers in Canada. The Bureau had concluded that without these divestitures the deal would likely have prevented or substantially lessened competition in certain cement and ready-mix concrete aggregates markets, as well as those in asphalt and related paving, in Ontario.

The Bureau's application also required Lafarge to divest its Blue Circle assets quickly, while continuing to ensure they were competitive and viable. On April 11, 2001, the Bureau agreed not to challenge the proposed acquisition after Lafarge contracted to sell the vast majority of its Canadian Blue Circle assets and businesses as well as related cement distribution assets in the United States. The Tribunal approved the order on August 21, 2001, and Lafarge sold the Blue Circle cement assets to Votorantim S.A. of Brazil, and undertook to divest the majority of its remaining assets in Ontario by auction. Valued at more than US$1 billion, the assets the merging parties divested in Canada and the United States represent the largest divestiture package in the history of Canadian competition law.

United Grain Growers Limited and Agricore Cooperative Ltd.

Prior to their merger on November 1, 2001, United Grain Growers Limited (UGG) and Agricore Cooperative Ltd. were two of the largest grain-handling companies in western Canada. On reviewing the proposed merger, the Bureau concluded that, among other things, the merging companies' increased market shares of terminal grain-handling services at the Port of Vancouver and in certain grain-handling markets in Manitoba and Alberta would substantially lessen competition.

Consequently, the Bureau filed an application with the Competition Tribunal on January 2, 2002, challenging the UGG acquisition of port terminal assets held by Agricore at the Port of Vancouver, and asking the Tribunal to order UGG to divest a terminal there. On January 15, 2002, the Tribunal issued an interim order requiring that the merged company, Agricore United, maintain the competitive viability of the UGG and Pacific Elevators Limited grain-handling terminals at the Port of Vancouver, pending a Tribunal hearing. The order also ensured that competitive access would be maintained, and that non-integrated grain companies would not suffer any service interruptions pending the hearing.

Prior to this application, on December 17, 2001, the Bureau had filed a separate application with the Tribunal for a consent order requesting Agricore United to divest itself of elevators in Dauphin, Manitoba, and Edmonton and Peace River, Alberta. Agricore agreed to these proposed divestitures prior to the Tribunal hearing on the Bureau's applications. The resulting consent order from the Tribunal specifies that the elevators be divested, a process that is ongoing.

As part of the consent order, Agricore United was also required to abide by strict confidentiality provisions concerning its post-merger ownership interests in CanAmera Foods Ltd., a Canadian canola seed processor. The provisions were intended to prevent the sharing of proprietary information with Archer Daniels Midland Company, which is not only a major shareholder in UGG, but also a large domestic seed processor and competitor of CanAmera's. On April 1, 2002, Central Soya Company Inc. announced that it had signed a letter of intent to acquire full ownership of CanAmera. This transaction, which is expected to be concluded in late May 2002, will completely resolve the Bureau's concerns about CanAmera.

SYSCO Corporation and SERCA Foodservice Inc.

On December 5, 2001, SYSCO Corporation announced its intention to acquire the assets of SERCA Foodservice Inc. and other related food service assets across Canada from Sobeys Inc. At the time of the announcement, SYSCO and SERCA were the two largest food service distributors in British Columbia. SYSCO is North America's largest food service distributor.

Food service distribution involves the supply of food and restaurant supplies to restaurants, fast-food chains, hotels, and educational and health care facilities.

After a thorough review, the Bureau concluded that the proposed merger would likely substantially lessen competition in British Columbia but did not raise competition concerns elsewhere.

The Bureau announced on March 21, 2002, that the merger could proceed based on SYSCO's announcement two days earlier that SERCA's assets in British Columbia would be sold to Gordon Food Service, Inc. Both transactions were completed on March 30, 2002.

Canada Bread Company, Limited and Multi-Marques Inc.

On January 22, 2001, Canada Bread Company, Limited, one of Canada's largest bakers, announced its intention to acquire the remaining 75 percent of Multi-Marques it did not already own.

In the Maritimes, Canada Bread owns Eastern Bakeries Ltd., while Multi-Marques controlled Ben's Limited. On October 12, 2001, the Bureau announced that it would require divestitures by Canada Bread to resolve some competition concerns. The Bureau's investigation showed that the proposed merger would likely substantially lessen competition in the supply of fresh bread and rolls to food service customers such as hospitals, restaurants, hotels and other institutional accounts in the Maritimes.

The Bureau allowed the transaction based on agreements in principle between Canada Bread and four other bakeries operating in the Maritimes to purchase the assets to be divested. Canada Bread further undertook to complete these divestitures, which represented one third of the merged company's food service business, as quickly as possible. Canada Bread also agreed to make certain assets available, such as trucks and transfer depots used to deliver fresh bread. The undertakings give the Bureau the right to apply to the Competition Tribunal for a consent order to formalize the agreement should the undertakings be breached.

Diageo PLC, Pernod Ricard S.A. and The Seagram Company Ltd.

On December 20, 2000, Diageo PLC and Pernod Ricard S.A. announced their successful bid for the spirits and wine business of The Seagram Company Ltd. The Bureau conducted an extensive review of the proposed merger and concluded that Diageo's purchase of Seagram's Canadian whisky brands, including Crown Royal and Seagram's VO, would likely substantially lessen competition in the supply of premium whisky products in several provinces. At the same time, the Bureau determined that the Pernod Ricard portion of the transaction did not raise competition concerns.

The Bureau announced in October 2001 that it had reached a settlement with Diageo to resolve competition concerns arising from the proposed acquisition. Under the terms of the settlement, Diageo agreed to divest its Gibson's Finest brand of Canadian whisky and related assets within a set period of time.

The undertaking further provided that if the terms of the undertaking were breached, or if the brand remained unsold by the end of that period, the Bureau would file a consent order with the Competition Tribunal that, if approved, would place the sale in the hands of a trustee. As of March 26, 2002, the brand had not been sold. The Bureau is continuing to monitor the divestiture process.

Footnotes

¹ The Bureau also applies these new provisions when enforcing the civil non-merger provisions of the Competition Act.

² The Tribunal issued its re-determination order on April 4, 2002. The majority of Tribunal members once again found that the merger's efficiencies were greater than and offset the anti-competitive effects. The Bureau filed an appeal with the Federal Court of Appeal on April 17, 2002, stating that the Tribunal's second decision raised fundamental questions about the purpose of the Competition Act and how it is interpreted. The Bureau also maintains that the Federal Court's 2001 decision directed the Tribunal to consider other objectives of the Act, such as the impact of the merger on consumers and small and medium-sized businesses, which the Tribunal members did not do.

**Merger Examinations, 1998-2002**
	1998-1999	1999-2000	2000-2001	2001-2002
Examinations Commenced Includes notifiable transactions, advance ruling certificates and examinations commenced for other reasons. 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.	309	361	373	328
Notifiable Transactions	191	198	206	128
Advance Ruling Certificate Requests	174	209	255	243
Examinations Concluded¹ Posing No Issue Under the Act	346	392	381	338
With Pre-closing Restructuring	0	2	0	3
With Post-closing Restructuring and Undertakings	1	6	5	2
With Consent Orders	2	1	1	2
Through Contested Proceedings²	2	0	0	0
Parties Abandoned Proposed Mergers in Whole or in Part as a Direct Result of the Commissioner's Position	3	1	2	0
Advisory Opinions Issued (included in Total Examinations Concluded)	7	3	2	2
Total Examinations Concluded Includes advance ruling certificates and advisory opinions issued and matters that have been concluded or withdrawn before the Competition Tribunal	302	338	389	345
Advance Ruling Certificates Issued (included in Total Examinations Concluded)	186	128	215	217
Examinations Ongoing at Year-end	44	67	54	13
Total Examinations During the Year	346	405	443	358
Applications and Notices of Application Before the Tribunal and the Courts
Ongoing at Year-end³	1	1	2⁴	5
Concluded⁵ or Withdrawn	4	2	1	2

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

² Year completed.

³ Includes the merger of United Grain Growers Limited and Agricore Cooperative Ltd. The Bureau filed two applications with the Competition Tribunal, a consent order on the prairie elevator portion of the proposed merger (December 7, 2001) and one on the acquisition of the port terminal assets of Agricore in Vancouver (January 2, 2002). The transaction is only counted once in the Ongoing at Year-end row.

⁴ The Commissioner of Competition v. Superior Propane Inc. et al. was concluded in the 1999-2000 fiscal year. In 2000-2001, the Federal Court of Appeal referred the case back to the Competition Tribunal.

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

**Breakdown of Mergers by Year, 1998-2002**
Business Line	1998-1999	1999-2000	2000-2001	2001-2002
Pre-merger Notification Filing^*	109	92	73	59
Advance Ruling Certificate Request	226	273	255	243
Other Examinations	26	60	45	26
Total Mergers	361	425	373	328
Asset Securitizations^**	52	64	0	0
Total Minus Securitizations	309	361	373	328

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

^**In January 2000, an exemption for notification of asset
securitization transactions came into force. As a result, asset
securitizations
have been removed for comparative purposes.}

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

Merger Review: Meeting Service Standards

**Number of Transactions**
Complexity	November 1997 to March 1998	April 1998 to March 1999	April 1999 to March 2000	April 2000 to March 2001	April 2001 to March 2002
Not Complex	68	212	232	282	271
Complex	8	56	49	52	41
Very Complex	-	6	8	14	2
Total	76	274	289	348	314

**Service Standards**
Complexity	Target	November 1997 to March 1998 Met	April 1998 to March 1999 Met	April 1999 to March 2000 Met	April 2000 to March 2001 Met	April 2001 to March 2002 Met
Not Complex	14 days	57 83.8%	187 88.2%	218 94.0%	270 95.7%	258 95.2%
Complex	10 weeks	8 100.0%	54 96.4%	43 87.6%	48 92.3%	36 87.8%
Very Complex	5 months	- -	6 100.0%	7 87.5%	14 100.0%	2 100.0%
Total		65 85.5%	247 90.1%	268 92.7%	332 95.4%	296 94.3%