Information Bulletin on Merger Remedies in Canada: III. Implementing Remedies

51. Hold-separate provisions, previously discussed in section II of this Bulletin, are required in most consent agreements pending completion of the agreed-upon remedy. ³⁴ These provisions ensure that confidential information is not communicated to the vendor during the implementation phase of the remedy. These provisions also ensure that the designated asset(s) or business(es) to be divested are: preserved; economically viable; and operated at arm’s length from the merged entity throughout both the initial and trustee sale periods. Hold-separate provisions may also be required when the vendor must make ongoing capital investments in, or otherwise support, the asset(s) to be divested during the implementation phase of the remedy.

52. Normally, it is necessary to immediately appoint an independent manager (“hold-separate manager”) to operate the asset(s) to be divested until the divestiture is complete. The Bureau requires that a hold-separate manager have extensive experience in the market(s) in question and operate independently (i.e., at arm’s length from the vendor). In addition, the vendor must transfer to the hold-separate manager all rights, powers, and authority necessary to perform his or her duties and responsibilities under the consent agreement. To this end, the vendor must not exercise any direction or control over the management of the asset(s) to be divested. The hold-separate manager will be responsible for the day-to-day management of the asset(s) to be divested and, if necessary, will report directly to an independent monitor.

53. The Bureau will normally require the appointment of an independent third party to monitor compliance with the consent agreement (“monitor”).³⁵ A monitor should have no ties, financial or otherwise, with the merging parties. The monitor will have complete access to all personnel, books, records, documents, facilities, or to any other relevant information that he or she requests. The monitor will ensure that the vendor uses its best efforts to fulfill its obligations under the consent agreement. The monitor will report, in writing, to the Bureau, as set out in the consent agreement.

ii. Responsibilities of the Vendor (General)

54. To keep the Bureau fully informed throughout the initial and trustee sale periods, the vendor must report to the Bureau in writing on a regular basis with respect to the status of the asset(s) to be divested, as well as the progress of the vendor’s efforts to accomplish the divestiture. This allows the Bureau to monitor whether the vendor is making best efforts to complete the divestiture.

55. Reports should include a description of the divestiture process, including negotiations, and the identity of all third parties contacted and prospective buyers who have come forward. In addition, the Bureau may also request other information, such as correspondence between the vendor and prospective buyers and a description of the state of the asset(s) at the time of reporting. A description of any material changes in the value or status of the asset(s) to be divested, which could affect their market value, must also be reported. The Bureau will have the right to request additional information at any time regarding the progress of the proposed divestiture.

56. The vendor of the designated asset package will be responsible for payment of services of the hold-separate manager, the monitor, and, if the asset(s) are not sold during the initial sale period, the trustee. The vendor will also be responsible for indemnifying the trustee with respect to any expenses and non-payment of fees associated with the divestiture.

iii. Obtaining Bureau Approval of a Qualified Buyer

57. In addition to approving the remedy package, the Bureau must approve the buyer of the divested asset(s), so as to ensure that such asset(s) will be operated by a vigorous competitor, and that the divestiture itself will not result in a substantial lessening or prevention of competition in the relevant market(s). Requiring such approval increases the likelihood that the buyer will preserve competition in the relevant market(s).

58. The Bureau’s approval of a buyer is based on the following criteria:

(i) the divestiture of the asset(s) to the proposed buyer must not itself adversely affect competition;
(ii) the buyer must be independent (i.e., at arm’s length) from the vendor;
(iii) the buyer must have the managerial, operational, and financial capability to compete effectively in the relevant market(s); and
(iv) the asset(s) being divested must be used by the buyer to compete in the relevant market(s) post-divestiture. This means that the asset(s) must be sold to a firm that will compete effectively in the market and have the intention to keep the asset(s) in the relevant market(s) after the divestiture process. This determination will be based, in part, on business plans that explain how the proposed buyer plans to compete in the future.

59. When a remedy package includes assets in several geographic areas, so as to address competition concerns in multiple local or regional markets, it may be necessary to approve more than one buyer. However, the Bureau’s willingness to accept multiple buyers depends on the nature of the adverse effects that must be addressed with a remedy. For example, a single buyer is more likely to be required when economies of scale and/or scope are important to ensuring the elimination of the substantial lessening or prevention of competition.

³⁴ In contested proceedings, hold-separate provisions are necessary to preserve the potential remedy pending resolution of the litigation, and usually take the form of a Tribunal order.

³⁵ A monitor is required when either hold-separate provisions or maintenance provisions are part of the remedy.