[Client] (together with its affiliates “[Client]”) and [Other Entity] (together with its affiliates “[Other Entity]”) are contemplating a transaction whereby they will be required to exchange a significant amount of information.

This memorandum sets out the key competition law compliance guidelines applicable to: (i) pre-merger discussions and information exchanges; (ii) the creation of documents assessing the transaction, and (iii) ensuring that the parties continue to operate their respective businesses independently until the transaction is completed.

1. Discussions/Information Exchanges

Where parties who compete with one another are contemplating a transaction, they must ensure that their discussions or information exchanges do not inadvertently adversely impact competition between them.

The primary competition law concern in these types of situations is that inappropriate discussions or information exchanges between the parties could lead to unlawful agreements (such as price-fixing or other co-ordinated conduct) that could harm competition should the transaction not proceed. In addition to avoiding engaging in unlawful conduct, it is also important to ensure that the parties’ conduct avoids any appearance of impropriety.

This is especially important given that certain types of agreements (for example, agreements relating to prices, customers and supply) are subject to the criminal provisions of the Competition Act that provide for penalties including significant fines and prison terms.

To minimize the potential competition law compliance risk in these situations, the parties should limit (i) the type of information exchanged, (ii) who receives the information, (iii) the creation of new documents, and (iv) how the exchanged information is used. As a general rule, parties should only disclose or exchange information that is reasonably necessary to analyze the transaction, as well as impose limits on who receives it.

Competitively Sensitive Information

Competitively sensitive information (“CSI”) is non-public confidential or proprietary information that belongs to either Party. This includes, but is not limited to:

  1. Prices: including present/future pricing strategy, methods of setting pricing, etc.
  2. Strategic Plans: including those relating to marketing/promotional activities, product development, analysis of other transactions, budgets, etc.
  3. Costs or Profits: including information regarding margins;
  4. Markets: including market plans, shares, or market conditions;
  5. Distribution: including information relating to networks or channels;
  6. Business Relationships: including customer contracts, supply agreements, or relationships with other competitors;
  7. Capacity: including future plans or expansions; and
  8. Other Confidential Information: including any other non-public information, the exchange of which could harm competition between the parties.

Permitted Topics

Topics that the parties may discuss include:

  1. Savings/Synergies: potential costs savings, synergies, or efficiencies;
  2. Assets: production facilities or other assets;
  3. Expansion/Rationalization: expansion or rationalization of production or logistics; and
  4. Business Objectives: business objectives or goals of the transaction.

Where there is any uncertainty as to whether it is appropriate to discuss or exchange certain information, legal counsel should be consulted prior to disclosing the information or discussing the topic in question.

Distribution and Use of Information

Any discussions or exchanges of CSI should be limited to those people whose involvement is necessary to evaluate the transaction. In addition, there may be people who, because of their position, should not be provided with certain types of information (e.g., sales representatives).

As a general proposition, the parties should involve the minimum number of people possible in the initial discussions (in particular during any initial phases of the transaction), with others becoming involved as and to the extent necessary to proceed with the transaction.

Any CSI exchanged or discussed between the parties should be limited to what is reasonably necessary to (i) evaluate and complete the transaction, or (ii) prepare any appropriate regulatory analyses or filings.

If any unauthorized disclosure of CSI is believed to have occurred, the parties must immediately cease the conduct that led to the disclosure and contact legal counsel to determine the appropriate course of action.

2. Document Creation

In the course of evaluating a potential transaction, the parties may wish to have analyses, presentations, or forecasts prepared (either internally or by outside experts/consultants). The parties must be aware that any documents created may have to be disclosed to Canadian or foreign competition authorities.

The following are some general guidelines regarding the creation of documents in the context of planning or implementing the transaction:

  1. document creation should be kept to a minimum by the parties and outside experts/consultants;
  2. unless specifically required and requested, documents or analyses regarding prices, marketing, new products, level of competition, or the impact of the transaction on competition should not be created;
  3. where appropriate, outside counsel should review drafts of any analyses before they are finalized and all documents provided to outside counsel should be clearly marked “Privileged & Confidential – For Advice of Outside Counsel”; and
  4. the distribution of any documents created in contemplation of the transaction should be kept to a minimum and all recipients expressly instructed not to (i) make additional copies, or (ii) provide copies to people not on the original distribution list unless specifically authorized to do so.

3. Independent Business Decisions

Until the transaction is completed, the parties must continue to operate their respective businesses independently and without consultation. In some cases, it may be appropriate to document the rationale for any significant business decisions made prior to the completion of any transaction between the parties.

Should you have any questions regarding the restrictions applicable to the disclosure of competitively sensitive information, or the proposed process for disclosure and discussion outlined in this memorandum, please contact [Name] at [Email] or at [Phone Number].