Annual Report 1996/97 - Canadian merger activity at an all-time high

Merger activity in Canada continued to increase for the third consecutive year. As well, merger review before the Competition Tribunal and the Courts is at an all-time high. The total number of merger examinations commenced during the 1996-97 fiscal year increased by 40 percent, from 228 to 319. During this period, 188 Advance Ruling Certificates (ARC) were issued, an increase of 55 percent over the previous period. The number of prenotification filings also increased by 40 percent. There were three applications filed before the Competition Tribunal and one consent order issued by the Tribunal.

Ciba Geigy Limited/Sandoz Ltd.

Pursuant to an agreement dated March 6, 1996, Ciba Geigy Limited and Sandoz Ltd., both Swiss companies, stated their intention to merge and form a new entity, Novartis Ltd. Both companies are competitors in a number of product areas. Following an in-depth review of this matter, the parties were informed that the competition concerns would be remedied by a proposed consent agreement under consideration by the U.S. Federal Trade Commission (FTC), which would require a number of divestitures and licensing arrangements in these markets in both the U.S. and Canada. The FTC granted provisional approval to the agreement, and the transaction proceeded to close.

Kimberly-Clark Corporation/Scott Paper Company

In July 1995, Kimberly-Clark Corporation (Kimberly-Clark) publicly announced its intention to acquire Scott Paper Company. Both companies are major producers of sanitary tissue products, including facial tissue, bathroom tissue, paper towels and baby wipes. As a result of this proposal, Kimberly-Clark acquired a controlling interest in Scott Paper Limited, the principal operating company of Scott Paper Company in Canada.

On September 5, 1995, the Bureau commenced an inquiry into the proposed transaction pursuant to paragraph 10(1)(b) of the Competition Act. On December 12, 1995, the parties completed the transaction, after providing a written undertaking to the Bureau to hold the Canadian operations of Kimberly-Clark and Scott Paper Limited separate and apart while the Bureau completed the inquiry into the competitive effects of the merger.

The parties were subsequently informed that it was the Bureau's view that the merger would likely lessen or prevent competition substantially in the consumer markets for baby wipes, facial tissue and paper napkins, and in the commercial markets for facial tissue, paper towels and wiping products. On April 18, 1996, Kimberly-Clark announced its intention to dispose of its controlling interest in Scott Paper Limited. On May 24, 1996, Kimberly-Clark sold the consumer baby wipes business of Scott in the United States and Canada to Procter & Gamble Inc.

Cast/Canada Maritime

In March 1995, the Cast Group was acquired by Canada Maritime Services Limited, a subsidiary of Canadian Pacific Limited, and became part of CP Ships. These were the two container shipping carriers carrying most of the container shipping cargo through the Port of Montreal. A formal inquiry was initiated in January 1995, and led to about two dozen orders under section 11 for the production of records and oral testimony.

The Bureau filed an application under section 92 with the Competition Tribunal on December 20, 1996, opposing this transaction. The application alleged that the merger prevents or lessens, or is likely to prevent or lessen, competition substantially with respect to the provision of intermodal non-refrigerated containerized shipping services operating through the Port of Montreal between Northern Continental Europe/United Kingdom and Ontario and Quebec.

Hollinger/Southam Inc.

On May 23, 1996, the Bureau issued an Advance Ruling Certificate in respect of the then proposed acquisition by Hollinger Inc. of an additional 21.5 percent of the shares of Southam Inc. Hollinger already held a 19.5 percent interest in Southam at the time of the request. On September 18, 1996, the Council of Canadians, a public policy advocacy group, sought an application for judicial review of the Bureau's decision. Because the Council was outside the 30 day period for seeking such a review, it was compelled to apply to the Federal Court for an extension of time. The matter was heard on December 9, 1996, and on December 16, 1996, the Court ruled that the Council had not justified its delay in bringing its application. In an obiter comment, Justice Cullen added that even if it had been within the required 30 day period, the Court did not believe that the applicants had proper standing to seek a judicial review. On December 19, 1996, the Council filed a Notice of Appeal of the Federal Court Trial Division decision.

On March 9, 1997, the Federal Court of Appeal upheld the Federal Court Trial Division's decision to dismiss the application by the Council of Canadians requesting more time to prepare pleadings in which it was alleged that Hollinger's acquisition of control of Southam violated the Canadian Charter of Rights and Freedoms. These decisions affirm that there is very limited scope for the courts to overturn administrative law decisions of the Bureau such as a decision to exercise discretion to initiate inquiries and issue Advance Ruling Certificates.

Dennis Washington and K&K Enterprises/Seaspan International Ltd. and Dennis Washington/Norsk Pacific Steamship Company, Limited

On March 1, 1996, the Bureau filed an application with the Competition Tribunal with respect to the acquisition by Mr. Dennis Washington, a Montana entrepreneur, of a significant interest in Seaspan International Ltd. in October 1994, as well as the acquisition of Norsk Pacific Steamship Company Limited in June 1995. In June 1996, Mr. Washington acquired control of Seaspan. Both Seaspan and Norsk provide marine transportation services in British Columbia.

Prior to the hearing scheduled to commence in January 1997, the Bureau and the Washington Group negotiated a proposed settlement, and on January 13, 1997, the Bureau filed an application for a draft consent order with the Competition Tribunal. The consent order was approved by the Competition Tribunal on January 29, 1997. The consent order involves the divestiture of three packages of assets, to address the Bureau's competition concerns about ship berthing in Burrard Inlet and Roberts Bank at the Port of Vancouver, as well as about chip and covered barging in B.C. coastal waters. The assets to be divested include five ship berthing tugs and a line boat, six to ten Seaspan chip barges and a tug, as well as two covered Seaspan barges.

If the sales of the divestiture packages are not completed within one year, a Trustee will be empowered to sell C.H. Cates & Sons Ltd. (a Washington ship berthing company operating in Burrard Inlet), and/or the Norsk chip, and/or covered barging assets, as applicable.

Canadian Waste Services Inc./Allied Waste Holdings (Canada) Ltd.

On March 5, 1997, the Bureau filed an application for a consent order with the Competition Tribunal with respect to non-hazardous solid waste collection in the Sarnia, Brantford, Ottawa and Outaouais markets. The consent order relates to the acquisition by Canadian Waste Services Inc. of the non-hazardous solid waste business of Allied Waste Holdings (Canada) Ltd., which had acquired the shares of Laidlaw Waste Systems (Canada) Ltd. in December 1996. The solid waste collection business in these markets includes residential, commercial front-end, industrial roll-off and recycling collection. The consent order also addresses competition concerns resulting from the acquisition of the commercial waste removal operations by Laidlaw Waste Systems in the National Capital Region of Waste Management Inc. (WMI) in September 1996.

The terms of the proposed consent order, which were agreed to by Canadian Waste and the Bureau and which are subject to approval by the Tribunal, involve the divestiture of Allied's waste collection business in Sarnia, the Canadian Waste business in Brantford, and the assets acquired from WMI in the Ottawa and Outaouais markets. In order to facilitate the divestitures in the Sarnia and Ottawa markets, the proposed consent order requires that Canadian Waste provide the prospective buyer(s) access at a preferred price to landfills in these markets. Canadian Waste will not own a landfill or other disposal facility in the Brantford or Outaouais markets.

In the Bureau's view, if the transaction were permitted to proceed, Canadian Waste would be able to significantly raise prices in the Sarnia, Ottawa, Outaouais and Brantford markets. The Bureau did not find that the merger would substantially lessen or prevent competition in other markets examined.

On April 16, 1997, the Competition Tribunal issued the consent order.

Southam Inc./Lower Mainland Publishing Inc.

On November 25, 1996, the Supreme Court of Canada heard Southam's appeal of the Federal Court of Appeal's decision in this matter. The Federal Court of Appeal on August 8, 1995, had decided that the Competition Tribunal had failed to apply the proper test in determining product market. The Federal Court of Appeal had ordered that the matter be remitted back to a differently constituted panel of the Tribunal to consider whether the merger prevented or lessened competition substantially, and to consider the factors set out in section 93. On March 20, 1997, the Supreme Court found that the Federal Court of Appeal should not have overturned the Competition Tribunal's decision as the proper standard for appeal was not "correctness" but reasonableness. The Court decided in favour of Southam and found that the appeal courts owe the Tribunal considerable deference because it is a specialized Tribunal, and that the Tribunal's decision on market definition was not unreasonable.

At the same time, the Supreme Court also heard Southam's appeal of the North Shore print real estate market decision. The Tribunal had concluded that the merger was likely to result in a substantial lessening of competition in this market, and subsequently, in a remedy decision, found the appropriate remedy to be divestiture of either the North Shore News or the entire Real Estate Weekly chain. The Federal Court of Appeal had upheld this decision and the Supreme Court dismissed Southam's appeal from the bench. As a result, Southam must now divest itself of either the North Shore News or the Real Estate Weekly chain within a six month period from the March 20 decision of the Supreme Court of Canada. The Supreme Court's decision supports the principle that the corrected remedy test in a contested merger case is curing the substantial prevention or lessening of competition, not returning the market to the pre-merger state of competition.

ADM/Maple Leaf Mills

Following the announcement in February 1996, that Maple Leaf Mills Inc. (MLM) planned to sell its Canadian flour milling assets, jointly owned by ConAgra Inc. and Maple Leaf Foods, to ADM Agri-Industries Ltd. (ADM), a Canadian subsidiary of Archer-Daniels-Midland of Decatur, Illinois, the Competition Bureau conducted an extensive review of the proposed acquisition. ADM and MLM were the two largest wheat flour millers in Canada. The assets to be acquired comprised wheat flour mills in Calgary, Port Colborne and two mills in Montreal.

The Bureau concluded that the transaction, as originally structured, would likely result in a substantial lessening of competition in the supply of bulk hard wheat flour in the Quebec/Atlantic Canada market (Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland). In the two other geographic markets likely to be affected by the transaction, i.e., the Ontario and Western Canada markets, the Bureau concluded that the merger would not result in a substantial lessening of competition. In Ontario, it was concluded that the U.S. Milling Company in Buffalo would be a significant competitive presence in the foreseeable future. In Western Canada, it was concluded that the merger would not substantially lessen or prevent competition, in part due to planned or actual expansion by other flour mills in this market.

On February 28, 1997, the Bureau announced that, with the agreement of ADM, it would shortly be filing an application for a consent order before the Competition Tribunal to remedy the substantial lessening of competition it identified as likely to result from the merger. Pending the filing of the application, the parties were permitted to proceed with the merger following the receipt of an undertaking from ADM to hold separate and apart from ADM the Oak Street mill in Montreal, which was to be divested. On March 21, 1997, applications for an interim order and a consent order were filed with the Competition Tribunal. On March 26, 1997, the Tribunal issued an interim order incorporating the terms of the hold separate undertaking. The hearing on the Bureau's applications was scheduled for May 1997.