Skip to content | Skip to institutional links

Common menu bar links

Annual Report of the Commissioner of Competition for the year ending March 31, 2005

Chapter 4: Reviewing Mergers

The Bureau reviews merger transactions under section 92 of the Competition Act and assesses whether a proposed merger is likely to substantially lessen or prevent competition. In an investigation in which the Bureau finds that a transaction meets the test of the law, the Commissioner asks the merging parties to restructure the merger or suggests remedies to solve particular competition issues. When problems cannot be resolved by negotiation, the Commissioner may decide to bring an application to the Competition Tribunal.

The number of mergers the Bureau reviewed in 2004–2005 increased significantly from the previous year. The size and scope of the mergers were also notable, as was the complexity of the competition issues they raised. In fact, there were more complex mergers in 2004–2005 than in the preceding year, particularly in the last quarter of the year.

This escalation follows three consecutive years of decline, caused in part by global economic conditions and the raising on April 1, 2003, of the dollar-value threshold above which merging parties must notify the Bureau of their transaction. Even without this increase (from $35 million to $50 million), the number of transactions this year would have been higher than that in 2002–2003. The Bureau had originally estimated that increasing the size-of-transaction threshold would result in a 10 percent decrease in the number of merger notifications. Although data on the number of transactions in the $35 million to $50 million range is lacking, a comparison over time between the number of mergers the Bureau examined and other outside data suggests that raising the threshold did decrease the number of filings, by as much as 20 percent or more.

International Co-operation

International co-operation is critical when reviewing mergers that involve more than one jurisdiction. To the extent possible, the Bureau shares its views and information about mergers with other reviewing jurisdictions, coordinates the timing of the review process and seeks consistent remedies.

In 2004–2005, the Bureau continued to co-operate with international organizations, such as the Organisation for Economic Co-operation and Development (OECD) and the International Competition Network. The Bureau works with the OECD’s Competition Committee to promote international co-operation in competition enforcement in merger review procedures. In addition, it contributes significantly to the International Competition Network’s Mergers Working Group (see chapter 5).

This chapter summarizes some of the key merger cases that were new or ongoing during 2004–2005 and provides comprehensive tables of merger examinations concluded during the year, along with statistics on service standards.

Key Merger Cases

Rogers Wireless Communications Inc. and Microcell Telecommunications Inc.

On September 20, 2004, Rogers Wireless Communications Inc., Rogers Communications Inc. and Microcell jointly announced that Rogers Wireless and Microcell had entered into an agreement under which Rogers Wireless would make an all-cash bid for Microcell securities valued at approximately $1.4 billion.

The Bureau conducted a comprehensive merger review to determine the competitive effects of the removal of Microcell as a competitor in the mobile wireless services market in Canada. The Bureau was concerned about the potential for the merged firm to exercise unilateral market power, as well as whether the merger would lead to coordinated behaviour and whether Microcell could be considered a maverick in the mobile wireless market. (A maverick is a firm with a strong incentive to deviate from coordinated behaviour and thereby provide a strong stimulus to competition in the market.)

After carefully reviewing the merger’s competitive effects on the mobile wireless industry, the Bureau concluded the following:

The transaction would not create or enhance market power in the mobile wireless market.
The merger would not increase the likelihood of coordinated behaviour among the major cellular telephone companies.
Microcell would have faced significant challenges in maintaining its position as competitors proceeded with the next generations of cellular service offerings.

On November 3, 2004, the Bureau announced that it had cleared the proposed acquisition.¹ Subsequently, the Bureau issued a technical backgrounder and published it on its Web site.

West Fraser Timber Co. Ltd. and Weldwood of Canada Ltd.

On December 7, 2004, the Bureau filed a consent agreement with the Competition Tribunal, addressing competition concerns raised by the merger of West Fraser Timber Co. Ltd. and Weldwood of Canada Ltd. The agreement allowed the forestry companies to merge while preserving choice for independent timber harvesters, wood re-manufacturers and log sellers in northern and southern parts of British Columbia.

The consent agreement required West Fraser and Weldwood to sell their sawmill interests in Babine Forest Products Limited and in Burns Lake and Decker Lake (Babine Timber Limited) and associated forest tenures. West Fraser also agreed to surrender certain timber harvesting rights in the Williams Lake to 100 Mile House area. This would permit a new offering of forest tenures, thereby removing significant barriers to competition and allowing a new player to enter the market or an existing one to expand its capacity. The agreement provided for the appointment of a trustee to complete the sales should West Fraser be unable to sell the assets as agreed. The registered consent agreement can be found on the Tribunal’s Web site.

In February 2005, the Burns Lake Native Development Corporation et al. filed an application with the Tribunal for an order rescinding or varying the consent agreement to recognize the applicants’ rights and interests. This litigation is ongoing.

Tolko Industries Ltd. and Riverside Forest Products Ltd.

On November 18, 2004, the Bureau filed a consent interim agreement with the Competition Tribunal with regard to the acquisition of Riverside Forest Products Ltd. by Tolko Industries Ltd. This agreement and the resulting Tribunal order hold separate all of Riverside’s assets in the Okanagan- Shuswap Forest District that give rise to competition concerns and preserves the Tribunal’s ability to order appropriate relief pending completion of the Bureau’s review of the transaction. The order expired on December 29, 2004. Tolko extended the order through an undertaking that expired on January 31, 2005. Tolko then provided undertakings to hold the Armstrong mill and associated tenures separate while the Bureau continued its inquiry. At year-end, the Bureau’s review was ongoing.

Canadian National Railway Company and British Columbia Rail Limited

On November 25, 2003, the Canadian National Railway Company (CN) and the Government of British Columbia announced that CN would be acquiring the outstanding shares of British Columbia Rail Limited (BC Rail) along with a longterm lease to operate on BC Rail’s railbed.

On July 2, 2004, following a comprehensive review of this very complex merger, the Bureau filed a consent agreement with the Competition Tribunal aimed at preserving competition for interline transportation of lumber and other commodities, and maintaining competitive rates and services for grain transportation in the Peace River area.

With regard to interline traffic, the consent agreement contains an “open gateway” arrangement that should allow shippers to continue to have direct access to competing rail carriers in Vancouver for the long-haul transportation of their products to various markets in North America. The arrangement includes a set of published rates for the haulage of traffic between BC Rail points and Vancouver, where competing carriers can pick up rail cars for transportation to final destinations. In addition, clear standards have been set to measure CN’s compliance with its commitment to improve BC Rail’s transit times. Safeguards have also been introduced to see that shippers are not discriminated against for choosing competing long-haul carriers.

As well, the consent agreement includes measures to protect the competitive prices and maintain the frequency of switching service offered to grain shippers in the Peace River area. It also contains safeguards aimed at ensuring non-discriminatory supply of covered hopper cars for the transportation of grain. The registered consent agreement can be found on the Tribunal’s Web site.

Waste Management of Canada and Browning- Ferris Industries Ltd.

On June 28, 2004, following a contested hearing held in late 2003, the Competition Tribunal dismissed with costs an application by Waste Management of Canada (formerly Canadian Waste Services) to rescind a divestiture order. The Tribunal found that the circumstances leading to its October 2001 order requiring divestiture of the Ridge Landfill had not changed; therefore, Waste Management still had to comply with it. On July 21, 2004, Waste Management filed an appeal in the Federal Court of Appeal and sought a stay of the order, pending the appeal. The Federal Court of Appeal granted a stay on August 6, 2004, and agreed to hear the appeal on November 4, 2004.

At the appeal hearing, the Federal Court of Appeal dismissed the appeal. As a result, Waste Management had 60 days to sell the Ridge Landfill. Deutsche Bank carried out the sale on behalf of Waste Management. Following a thorough review of prospective purchasers, the Commissioner approved BFI Canada Inc. as an acceptable purchaser. The acquisition of the Ridge Landfill by BFI Canada Inc. closed on January 4, 2005.

Bertelsmann AG and Sony Corporation

In December 2003, Bertelsmann AG (BMG) and Sony Corporation of America announced their intent to form a global, jointly owned recorded music enterprise to be named Sony BMG. In light of the high degree of concentration in the industry, the Bureau conducted an in-depth review of the proposed joint venture. In particular, it carefully examined the possibility that the transaction would reduce competition by making coordinated behaviour among record companies more likely. The examination did not reveal evidence of previous coordinated behaviour among the major record companies in Canada, nor did it suggest that the transaction would likely create potential for such behaviour. The Bureau co-operated with the Competition Directorate of the European Commission and the United States Federal Trade Commission throughout the review. On July 29, 2004, the Bureau announced that there were no grounds for challenging the transaction.

Merger Enforcement Guidelines

In March 2004, the Bureau released draft revisions to its Merger Enforcement Guidelines. Various stakeholders provided written submissions concerning the guidelines, including the Canadian Bar Association, individual members of the Canadian competition bar, the American Bar Association, economists and other interested parties. The Bureau posted these submissions on its website and subsequently held public consultations with stakeholders in Vancouver, Toronto and Montréal in June and July 2004. It also held extensive discussions with competition authorities in the United States and Europe.

After careful consideration of stakeholders’ comments, the Bureau revised the March 2004 draft of the guidelines to better explain various points. The revised guidelines were released in September 2004 and are available on the Bureau’s Web site.

Bank Merger Enforcement Guidelines

In June 2003, the Government issued its response to two House of Commons and Senate committee reports, "Large Bank Mergers in Canada: Safeguarding the Public Interest for Canadians" and "Canadian Businesses and Competition in the Public Interest: Large Bank Mergers in Canada", with a recommendation that the Bureau review the Bank Merger Enforcement Guidelines. The guidelines set out the Bureau’s analytical framework for assessing the competitive effects of a merger involving two or more banks listed in Schedule 1 of the Bank Act.

The Bureau consulted stakeholders in the fall of 2003 and sought public comment on the revised guidelines in February 2004. All submissions were made available to the public and posted on the Bureau’s Web site, except when confidentiality was specifically requested. The Bureau has reviewed the comments it received and intends to issue the revised guidelines concurrently with the Government’s policy paper on large bank mergers.

Merger Examinations, 2004–2005

Examinations commenced ⁽¹⁾	269
Notifiable Transactions	77
Advance Ruling Certificate Requests ⁽²⁾	214
^{(1) Includes notifiable transactions, advance ruling certificates and examinations commenced for other reasons, but not ongoing examinations from the previous fiscal year.} ^{(2) Total number of notifiable transactions with advance ruling certificate requests exceeds the number of examinations commenced because in many instances the parties filed a long- or short-form notification along with a request for an advance ruling certificate.}
Examinations concluded ⁽¹⁾	265
No Issue Under the Act	259
Advance Ruling Certificates Issued ⁽²⁾	179
With Agreed Remedies ^(A)	3
Consent Orders and Registered Consent Agreements ⁽³⁾	2
Contested Proceedings ⁽⁴⁾	0
Parties Abandoned Proposed Mergers in Whole or in Part as a Direct Result of the Commissioner’s Position	1
Proposed Mergers Abandoned for Other Reasons ⁽⁵⁾	2
^{(1) When a transaction has a notification as well as an advance ruling certificate, it is only counted once. This number also includes advance ruling certificates and matters that have been concluded before or withdrawn from the Competition Tribunal.} ^{(2) Advance Ruling Certificates Issued is a subset of the No Issue Under the Act category. These cases have only been counted once in Examinations Concluded.} ^{(3) Consent Orders and Registered Consent Agreements is a subset of the With Agreed Remedies category. These cases have only been counted once in Total Examinations Concluded.} ^{(4) Year Completed.} ^{(5) Cases for which the Bureau opened a file but parties abandoned the transaction for reasons unrelated to the Bureau’s review and before completion of the review.} ^{(A) Consent agreements registered with Competition Tribunal: West Fraser and Weldwood, and CN and BC Rail. In Sanofi-Synthélabo/Aventis, the worldwide divestitures accepted by the European Commission resolved competition concerns in Canada.}
Total examinations during the year	283
Total Examinations Concluded	265
Examinations Ongoing at Year-end	18
Advisory Opinions Issued	0
Section 92 Matters Before the Tribunal and the Courts ⁽¹⁾	.
Ongoing at Year-end	0
Concluded ⁽²⁾ or Withdrawn ^(B)	2
^{(1) Includes applications for consent orders and consent agreements.} ^{(2) “Concluded” means that the Competition Tribunal or the courts issued an order or decision and there were no further appeals.} ^{(B) Cases concluded: West Fraser and Weldwood, and CN and BC Rail.}
Other Tribunal Proceedings ⁽¹⁾	.
Ongoing at Year-end ^(C)	3
Concluded ⁽²⁾ or Withdrawn ^(D)	2
^{(1) Includes section 106 applications.} ^{(2) “Concluded” means that the Competition Tribunal or the courts issued an order or decision and there were no further appeals.} ^{(C) Rona section 106 application, Commissioner of Competition v. Rona divestiture approval under section 105, Burns Lake Native Development Corporation et al. v. Commissioner of Competition and West Fraser Timber Co. Ltd. and West Fraser Mills Ltd. section 106(2) application.} ^{(D) Cases concluded: Waste Management of Canada and Browning-Ferris (section 106), and Tolko/Riverside (section 100).}

Breakdown of Mergers by Year, 2002–2005

Business line	2001-2002	2002-2003	2003-2004	2004-2005
Pre-Merger Notification Filings*	59	28	22	31
Advance Ruling Certificate Requests	243	224	159	214
Other Examinations	26	27	21	24
Total mergers	328	279	202	2

^{* Excludes notification filings in which advance ruling certificates were
also requested.}

Merger Review: Meeting Service Standards

Number of Transactions
Complexity	2001-2002	2002-2003	2003-2004	2004-2005
Not Complex	271	215	165	213
Complex	41	21	18	19
Very Complex	2	2	2	8
Total	314	238	185	240

Service Standards Met
Complexity Target	Objectif	2001-2002	2002-2003	2003-2004	2004-2005
Not Complex	14 days	258 95.7%	213 99.1%	164 99.4%	208 97.7%
Complex	10 weeks	36 87.8%	20 95.2%	17 94.4%	17 89.5%
Very Complex	5 months	2 100.0%	2 100.0%	2 100.0%	7 87.5%
Total		296 94.3%	235 98.7%	183 98.9%	232 96.6%

Footnotes

¹ The Commissioner took no part in this matter.