Annual Report of the Commissioner of Competition for the year ending March 31, 1999

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Reviewing Mergers

In an era of economic and industry restructuring, the current wave of merger activity around the world could continue well into the next century.

The Competition Bureau dealt with 360 merger cases in 1998-1999
(see Table 5).

Several of the mergers examined by the Bureau involved key infrastructure industries, such as banking, national media, and the refining and retailing of gasoline - each of which affects communities across Canada.

Table 5

Breakdown of Mergers by Year, 1995-1999

Business Line	1995-1996	1996-1997	1997-1998	1998-1999
Pre-merger notification filing	64	64	90	112
Advance ruling certificate request	142	224	284	222
Other examinations	22	31	19	26
Total	228	319	393	360

Royal Bank of Canada-Bank of Montreal and Canadian Imperial Bank of Commerce-Toronto-Dominion Bank

These proposed transactions resulted in the two single most extensive and exhaustive merger reviews ever carried out in Canada. The combined Canadian assets of the four merging banks totalled about $590 billion. (The next largest was the merger between Imperial Oil and Texaco Canada in 1989, where the two companies had combined Canadian assets of $13.8 billion.)

During the investigations, staff interviewed individuals across Canada, reviewed a total of 1100 boxes of documents from the four banks and created a data base of almost half a million pages. This work was conducted under the close scrutiny of an unprecedented level of public interest throughout the 10-month merger examination period.

In his assessment to the four bank chairs and to the Minister of Finance, the Commissioner determined that the proposed mergers, as they were presented, would likely lead to a substantial lessening or prevention of competition that would cause higher prices and lower levels of service and choice for several key banking services in Canada.

The Bureau found that the proposed mergers would have been likely to lessen or prevent competition in three broadly defined lines of business: branch banking, credit cards and the securities industry. In each case, potentially troublesome geographic markets were identified, and reasons for the Bureau's conclusions were clearly set out in letters to each of the bank chairmen. (The full text of both letters is available on the Bureau's Web site)

Citing the Bureau's analysis as a key factor in his decision making, the Minister of Finance announced in December 1998 that the two mergers would not be allowed to proceed.

Superior Propane and ICG Propane

Superior Propane and ICG Propane operate a network of branches and distribution outlets across Canada, selling propane and related equipment to wholesale, commercial, industrial, residential, agricultural and automotive sectors. The companies are the two largest suppliers of propane and related equipment in Canada, with a combined market share of 73 percent on a national basis.

In December 1998, the Bureau's investigators found that the proposed transaction would give the merged entity a monopoly or near monopoly position in 26 local markets, and market shares exceeding 65 percent in 21 additional local markets. This would leave Superior Propane as the only propane firm able to provide nationwide service to major national accounts. The Bureau believed that this would leave many Canadians with limited purchasing options.

However, the Competition Tribunal dismissed the Bureau's application for an injunction to prevent the closing of the transaction, which went ahead as planned in December 1998.

In a separate ruling, the Tribunal accepted the Bureau's subsequent request for a "hold separate" agreement. This means that Superior Propane and ICG Propane must continue to operate as separate entities until the Tribunal has had time to fully consider the serious competition concerns raised by the Bureau. Scheduled to be heard in September 1999, this may be a landmark case on the meaning of efficiencies and the extent to which efficiencies can save an otherwise anti-competitive transaction.

Petro-Canada and Ultramar Diamond Shamrock

This proposed $8-billion deal would have resulted in Petro-Canada merging its five refineries and 3517 service stations with Ultramar's two refineries and 1713 service stations in Eastern Canada, as well as some assets in the Northeastern United States.

Following a five-month examination of the proposal, the Bureau determined that the proposed merger of two major players in Quebec and Atlantic Canada would lead to a substantial lessening or prevention of competition. Key concerns related to markets in Quebec and Atlantic Canada, where the two companies compete at both wholesale and retails levels. The concerns included the following:

• the removal of a vigorous and effective competitor such as Ultramar at both the wholesale and retail levels for gasoline and other oil-based products;
• increased levels of concentration for gasoline and distillate products, and the likelihood that prices could increase; and
• the fact that costs at the wholesale level inevitably trickle down to consumers over the longer term.

In mergers of this size, there is often room to restructure a deal to alleviate competition concerns. However, in this instance no workable alternatives could be found. After careful consideration of the Bureau's concerns, the parties announced they would not complete the transaction. Today, they continue to compete in the supply of refined petroleum products, a plus for independent gasoline retailers and consumers looking for product choice and competitive pricing.

Southam Inc. and The Financial Post

The Bureau's focus when examining proposed mergers in the print media is on preserving competition in advertising, not in editorial diversity.

Following a month-long review of Southam's proposed acquisition of The Financial Post newspaper from Sun Media Corporation in August 1998, the Bureau did not challenge this transaction.

In its decision, the Bureau concluded that combining The Financial Post with the new daily (now known as the National Post) would not prevent competition substantially in the marketplace. Moreover, it was felt that the introduction of the new, merged daily newspaper would drastically alter the newspaper landscape and that it could result in even more vigorous competition.

However, the Bureau has undertaken to keep a watchful eye on future market developments, to ensure that advertisers across the country have access to a range of media alternatives. Advertisers can then continue to reach their target audiences at the best possible prices.

Sun Media Corporation, Torstar Corporation and Quebecor Inc.

In the period from October 1998 to January 1999, the Bureau reviewed the following three transactions involving Sun Media Corporation and its assets:

• Torstar Corporation's bid for all outstanding shares of Sun Media Corporation;
• a subsequent bid by Quebecor Inc. for all outstanding shares of Sun Media Corporation; and
• Torstar Corporation's proposed acquisition from Quebecor of The Hamilton Spectator, the Cambridge Reporter, the Guelph Mercury and The Record in Kitchener-Waterloo from Sun Media Corporation.

In the first instance, the Bureau concluded that Torstar's proposed acquisition of Sun Media would lead to a substantial lessening of competition in the Greater Toronto area. The Bureau's research found that Torstar's The Toronto Star and Sun Media's The Toronto Sun compete vigorously for retail and classified advertising.

The second case, Quebecor's acquisition of Sun Media, raised no issue under the Competition Act. The two companies have no overlapping operations, and do not compete for advertising. Quebecor's daily newspapers are located in Quebec and Manitoba, while Sun Media's are in Ontario and Alberta.

In the third proposal, the Bureau did not identify any anti-competitive effects resulting from Torstar's proposed acquisition of Sun Media's newspaper holdings just outside of Toronto. Therefore, it did not oppose Quebecor's sale to Torstar of the four Sun Media publications it had recently acquired in the Hamilton, Cambridge, Guelph and Kitchener-Waterloo markets.

Canadian Waste Services and WMI Waste Management of Canada, Inc.

In October 1998, the Bureau announced that it would not challenge the acquisition by Canadian Waste Services of certain non-hazardous solid waste assets belonging to WMI Waste Management of Canada, Inc.

However, as a result of serious competition concerns identified by the Bureau in the commercial "front-end" business, Canadian Waste Services agreed to sell WMI's commercial collection assets in certain markets.

Divestitures following an acquisition are common. In previous waste acquisitions, the Bureau has required divestiture to eliminate any possibility of a substantial lessening of competition in markets or services.

Information on these merger reviews and other merger information can be found on the Bureau's Web site.

When conducting merger reviews, the Bureau understands that time is of the essence. As a result, the Bureau monitors its performance to ensure that it is meeting prescribed service standards (see Table 6).

Table 6

Merger review: Meeting Service Standards, November 1997 to November 1998

Complexity	Number of Transactions	Service Standard Target	Met
			(#)	(%)
Not complex	256	14 days	232	91%
Complex	40	10 weeks	39	98%
Very complex	1	5 months	1	100%
Total	297	--	272	92%

Figures 1 and 2 illustrate that, in the vast majority of cases, the Bureau met or surpassed its service standards during the first year in which these standards were established.

Figure 1 - Service Standard: Meeting our Target Non-complex Transactions, November 1997 to November 1998

Figure 2 - Service Standard: Meeting our Target Complex Transactions, November 1997 to November 1998