Annual Report 1997/98 - Reviewing Mergers

Primary business sectors, particularly those concerned with telecommunications, energy, petroleum, transportation and financial services, are undergoing a fundamental change and restructuring as part of the merger trend. The Bureau continues to manage the reviews of significant mergers and acquisitions. The number of filings, including prenotifications, Advance Ruling Certificates and securitizations, has increased by approximately 32 percent over last fiscal year. Among other things, we undertook to refine our analytical framework for merger review and to consult on the Merger Enforcement Guidelines: as Applied to Bank Mergers, Consultations and Submissions.

Merger considerations played a key role in the development of Bill C-20. A major section of the bill targeted the merger provisions, particularly those dealing with prenotification.

The design and implementation of the Fee and Service Standards Policy also affected merger review. This initiative included a study of the internal processes relating to merger review, the timing of the review of transactions, and the redesign of the structure and procedures. The policy, which came into operation on November 3, 1997, also commits the Bureau to definite turn-around times in providing these services. The Bureau is committed to holding a fee forum to review performance, complaints and service levels. The next Annual Report will cover the highlights of the meeting.

As well, the Bureau began a review of two proposed mergers involving four major Canadian banks, one between the Royal Bank of Canada and the Bank of Montreal and another between the Canadian Imperial Bank of Commerce and the Toronto Dominion Bank. These transactions are among the largest and most complex transactions that the Bureau has reviewed.

On January 27, 1998, we made an announcement in which we detailed the consultation process concerning merger review in the whole of the financial services sector and our work in what was then a draft version of the Merger Enforcement Guidelines: as Applied to Bank Mergers, Consultations and Submissions.⁶

Petro-Canada and Ultramar

Another high-profile transaction review concerned the proposed merger between Ultramar and Petro-Canada. In January 1998, the Bureau announced that it would conduct a thorough examination of the proposed merger and the likely effects of the transaction on the supply and pricing of various refined petroleum products.

Competition in the Non-hazardous Solid Waste Sector

On March 6, 1998, the Competition Bureau filed an application for a consent order with the Competition Tribunal in the matter of Canadian Waste Services Inc. to remedy competition issues in the non-hazardous solid waste collection and disposal business in Edmonton.

The Bureau found that with the purchase of non-hazardous solid waste assets from WMI Waste Management Inc. by Canadian Waste Services in June 1997, there would be a substantial lessening of competition in the Greater Vancouver, Edmonton, Calgary, Kitchener and Barrie markets.

Following initial negotiations between Canadian Waste Services and the Bureau, the company agreed to a voluntary restructuring of the transaction and sold commercial collection assets in these markets to Capital Environmental Resource Inc.

Even after the restructuring, however, a competition issue remained in Edmonton, where the Bureau found that Canadian Waste Services would still have a dominant position in waste disposal. The June 1997 acquisition of the West Edmonton landfill site from WMI Waste Management had given Canadian Waste Services operating control of two (West Edmonton and Ryley) of the three primary landfill sites in the Edmonton market.

After several months of negotiations with the Bureau, Canadian Waste Services agreed to a remedy in which it will offer cost-based access at the Ryley landfill to Capital Environmental Resource Inc. The Bureau concluded that this access arrangement, together with the divestiture of related assets, will ensure that there is no substantial lessening of competition in Edmonton's commercial collection sector. Moreover, the restructuring of these transactions has resulted in the emergence of a new national player in the Canadian waste industry.

The resolution of these two problematic transactions exemplifies how parties to a proposed merger, which would otherwise lead to a substantial lessening of competition, can avoid delays and costly litigation while adhering to competition laws by approaching the Bureau early in the process and meeting with Bureau staff to resolve the issues.

Cast North America Inc. (Cast) and Canadian Pacific (CP) Limited

On December 20, 1996, the Bureau announced that it had filed an application with the Competition Tribunal challenging the merger between Cast and CP Limited. We alleged that the acquisition of Cast by CP Limited would substantially lessen or prevent competition in container shipping between Montréal and Northern Europe. The merged companies operate fully integrated intermodal container shipping services known as Cast and Canada Maritime Services Limited.

On September 17, 1997, with the consent of Canada Maritime and the Royal Bank of Canada, the Competition Tribunal issued an order to stop the process of the Director's challenge of the acquisition.

The order was issued after the Director presented evidence that Maersk Canada Inc., Sea Land Services Inc. and P & O Nedloyd had announced that they would be entering into the market for intermodal non-refrigerated shipping services through the Port of Montréal between Northern Continental Europe/United Kingdom and Ontario/Quebec.

The order also provided that unless the Director moved to lift the order by March 31, 1998, the application would be dismissed. The application was subsequently dismissed after the Bureau concluded that the new entry was likely to resolve its concerns.

Bank of Nova Scotia and National Trust

On June 24, 1997, the Bank of Nova Scotia announced that it would acquire, via a public offer, the shares of National Trusco Inc. The Bureau's review of the transaction concluded that this was not likely to substantially lessen or prevent competition.

Great-West and London Life

On August 19, 1997, Great-West Life Assurance Company and Great-West Lifeco Inc. announced a bid to acquire the London Insurance Group Inc., including the company's London Life Insurance Company subsidiary.

Both Great-West Life and London Insurance are life and health insurance companies. Upon completion of the transaction, the merged entity would rank first in Canada in both individual and group insurance.

Following a thorough assessment, the Bureau concluded that the proposed transaction was not likely to lessen or prevent competition in any market in Canada.

Coopers & Lybrand/Price Waterhouse Canada and Ernst & Young/KPMG

On September 19, 1997, Coopers & Lybrand and Price Waterhouse announced a plan to merge their operations worldwide. In December 1997 the worldwide partners of both firms approved the proposed merger.

On October 20, 1997, Ernst & Young and KPMG announced a proposed merger of their accounting firms. The transaction would have created the largest accounting firm in Canada, with annual revenues of approximately $1 billion dollars, representing almost 40 percent of the Canadian accounting industry.

The Bureau examined these proposed mergers to determine whether either or both would result in substantially lessening or preventing competition in various accounting markets, with particular emphasis on their impact in the provision of auditing services. The Ernst & Young/KPMG transaction was abandoned in February 1998. The Bureau subsequently concluded that it would not oppose the Coopers & Lybrand/Price Waterhouse merger.

DIR v. Washington et al.

On January 29, 1997, the Competition Tribunal issued a consent order with respect to certain acquisitions in the British Columbia marine transportation industry by Mr. Dennis Washington, a Montana-based businessman. The Director had alleged that Mr. Washington's ownership of both Seaspan International Ltd. and C.H. Cates & Sons, the only two providers of ship berthing services in Vancouver, was likely to substantially prevent or lessen competition.

The Director had further alleged that Mr. Washington's ownership of both Seaspan and Norsk Pacific Steamship Company Limited was likely to prevent or lessen competition with respect to chip barging and covered barging in British Columbia coastal waters. The Tribunal order established a 12-month time frame for Mr. Washington to effect certain asset divestitures in three markets: ship berthing in Burrard Inlet of Vancouver; chip barging in British Columbia coastal waters; and covered barging in British Columbia coastal waters.

In September 1997 the covered barging assets to be divested were sold to Gemini Marine Services Ltd. of Garden Bay, British Columbia. In October 1997 the chip barging assets to be divested were sold to a group led by North Arm Transportation Ltd. of Vancouver. On December 1, 1997, Mr. Washington filed an application before the Tribunal to vary the January 29, 1997, Tribunal order, so as to remove his obligation to effect the ship berthing divestiture.

In that application, Mr. Washington asserted that the entry in early October 1997 into the Burrard Inlet ship berthing market by Tiger Tugz Inc., an affiliate of Rivtow Marine Ltd. (the second largest ship berthing and barging operator in British Columbia), is likely to alleviate the competition concerns that were alleged to arise from Mr. Washington's ownership of both Seaspan and Cates. This matter is currently pending before the Tribunal.

Guinness/Grand Metropolitan

On May 13, 1997, Guinness plc (Guinness) and Grand Metropolitan plc (Grand Met) announced their intention to create a new company, called GMG Brands, which would encompass both companies' spirits businesses, thereby creating the world's largest spirits producer. Guinness and Grand Met are active in the spirits industry in Canada through their affiliates United Distillers Canada Inc. and IDV Canada, respectively, and sell such brands as Johnnie Walker Scotch, Smirnoff vodka and Tanqueray gin.

An assessment of the transaction's likely effects in Canada was undertaken, including the analysis of extensive information from competitors and provincial liquor authorities, and consultation with foreign antitrust authorities reviewing the same matter, especially the U.S. Federal Trade Commission (FTC) and the European Commission.

On December 16, 1997, the Bureau advised the parties that the transaction would have the likely effect of substantially lessening competition in all Canadian provincial markets for dry gin and standard Scotch whiskey. The merged entity would own five of the six leading dry gin brands and two of the three leading standard Scotch whiskey brands. This high level of concentration is combined with significant barriers related to brand building and entry into the provincially controlled retail environment. The U.S. Consent Decree agreed to by the parties and the FTC would have the effect of removing the alleged competition concerns in Canada, so no further action was required by the Bureau.

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While we can only account for this project in next year's annual report, the Bureau released the Merger Enforcement Guidelines: as Applied to Bank Mergers, Consultations and Submissions on July 15, 1998. The document, available on our Web site, describes in detail how the Competition Bureau will examine the proposed bank mergers between the Royal Bank of Canada and the Bank of Montreal, and between the Canadian Imperial Bank of Commerce and the Toronto Dominion Bank.