Information Bulletin on Merger Remedies in Canada: I. Objectives of Remedial Action

1. Remedies are required when a merger or proposed merger (“merger”) is likely to prevent or lessen competition substantially in one or more relevant markets. In such cases, the Commissioner of Competition (“the Bureau” or “the Commissioner”)³ will take remedial action to prevent a merged entity, alone or in coordination with other firms, from having the ability to exercise market power, as a result of the merger.⁴ When the Bureau believes that a merger is likely to prevent or lessen competition substantially, it can either apply to the Competition Tribunal (“Tribunal”) to challenge it under section 92 of the Competition Act⁵ (“the Act”), or negotiate remedies with the merging parties in order to resolve the competition concerns by consent.⁶

2. The standard for achieving an acceptable remedy in either a contested or consent proceeding is set out by the Supreme Court in Canada (Director of Investigation and Research) v. Southam Inc. ⁷ In this case, the Court concluded that “the appropriate remedy for a substantial lessening of competition is to restore competition to the point at which it can no longer be said to be substantially less than it was before the merger.”⁸ Throughout this Bulletin, this standard is referred to as either “eliminating the substantial lessening or prevention of competition” or, for ease of reference, as “preserving competition”⁹ in the relevant markets.

3. Eliminating the substantial lessening or prevention of competition sometimes means that the remedy must go beyond that which is necessary to restore competition to an otherwise acceptable level. To this end, the Supreme Court, in Southam, emphasized the importance of ensuring that the remedy fully eliminates the substantial lessening (or prevention) of competition: “If the choice is between a remedy that goes farther than is strictly necessary to restore competition to an acceptable level and a remedy that does not go far enough even to reach the acceptable level, then surely the former option must be preferred. At the very least, a remedy must be effective. If the least intrusive of the possible effective remedies overshoots the mark, that is perhaps unfortunate, but from a legal point of view, such a remedy is not defective.”¹⁰

4. When a merger is likely to prevent or lessen competition substantially, the Bureau generally attempts to negotiate an agreement with the merging parties without proceeding to litigation. This approach enables a less costly and more expeditious resolution of the matter. In negotiating a resolution, the Bureau aims to address competition concerns in all markets where a likely substantial lessening or prevention of competition has been identified. In cases where it is not possible to address all such competition issues on consent, the Bureau is prepared, where appropriate, to consider limiting or narrowing the scope of litigation. This enables the uncontentious parts of a merger to proceed while the Bureau challenges only those portions that are likely to result in a substantial lessening or prevention of competition before the Tribunal. Such settlements normally require the merging parties to agree, at a minimum, to hold separate the asset(s) and/or business(es)¹¹ that could be the subject of an order. Hold-separate provisions are described more fully in sections II and III of this Bulletin.

5. If a merger does proceed to litigation (i.e., being challenged under section 92 of the Act), the Bureau will identify proposed remedies in its application to the Tribunal.¹² As set out in section 92(1)(e) and 92(1)(f), the Act is very specific about the remedies the Tribunal can impose in contested cases. In the case of a merger that has closed, remedial action is limited to either dissolution of the merger or disposition of assets or shares. With a proposed merger, the Tribunal can only direct that the merger or part of the merger not proceed, or otherwise prohibit certain actions by the merging parties.

6. With the consent of the merging parties and the Bureau, in the cases of either a proposed merger or a merger that has closed, the Act allows for a wider range of remedies to be considered.¹³ To be effective, a remedy must eliminate the substantial lessening or prevention of competition resulting from the merger. Ultimately, an effective remedy is based on the unique circumstances of the case and theory of competitive harm, as alleged by the Bureau or determined by the Tribunal. Accordingly, an effective remedy could include addressing any impediments to competition that would otherwise allow remaining or potential competitors to constrain market power following the merger.¹⁴

7. In addition to being effective, remedies must also be enforceable and capable of timely implementation so that the substantial lessening or prevention of competition can be eliminated as quickly as possible. Accordingly, in the case of divestitures, an acceptable buyer of divested asset(s) (“buyer”) must be provided with those asset(s) necessary to achieve the goal of eliminating the substantial lessening or prevention of competition, as quickly as possible. Careful consideration is given to identifying the asset(s) required for a buyer to compete effectively over the long term.

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³ For the purposes of this Bulletin, the terms “Commissioner” and “Bureau” are used interchangeably, as appropriate to the topic discussed.

⁴ The analytical framework used to determine whether a merger is likely to prevent or lessen competition substantially is described in detail in the Bureau’s 2004 Merger Enforcement Guidelines.

⁵ RS, 1985, c. C-34

⁶ See section 105 of the Competition Act.

⁷ Canada (Director of Investigation & Research, Competition Act) v. Southam Inc. [1997] 1 S.C.R. 748. [Hereinafter referred to as “Southam”].

⁸ Southam at 85.

⁹ “Preserving competition” is strictly for ease of reference. The Bureau will seek to obtain all remedies according to the standard set out in Southam

¹⁰ Southam at 89.

¹¹ Although businesses are generally comprised of more than just assets, for ease of reference, the terms “asset(s)” and “business(es),” in the context of divestitures, are used interchangeably throughout this Bulletin. Furthermore, such terms are to be interpreted broadly: for example, depending on the circumstances, a divestiture of “asset(s)” may also entail the divestiture of shareholdings.

¹² In contested cases, required remedies take the form of a “Tribunal order” or “divestiture order”.

¹³ Negotiated remedies between the Bureau and the merging parties take the form of a “consent agreement”, which is registered with the Tribunal. As set out in section 105 of the Act, a registered consent agreement has the same force and effect as a Tribunal order.

¹⁴ Effective remedies are ultimately intended to preserve competition, rather than promote certain competitors.