On May 21, 2020, the Canadian Competition Bureau (Bureau) released the final version of its Model Timing Agreement for Merger Reviews involving Efficiencies (Model Timing Agreement), which will have important implications for complex mergers involving efficiencies claims. This follows the release of a draft of the Model Timing Agreement for public consultation on July 16, 2019.
KEY TAKEAWAYS
- The Canadian Competition Act contains a defence for mergers likely to bring about efficiencies gains that outweigh any anti-competitive effects
- The Bureau's Model Timing Agreement will require merging parties—who agree—to delay closing if they wish the Bureau to assess whether the efficiencies defence applies prior to initiating any challenge—interim or permanent—to the transaction
- Under the Model Timing Agreement, the Bureau effectively extends its statutory review timeline by over 100 days, and potentially much longer depending on how quickly certain information can be provided and whether the Bureau concludes it has been provided complete information
CANADA'S EFFICIENCIES DEFENCE
Under the Competition Act, mergers that result in anti-competitive effects cannot be prohibited if the efficiency gains from the transaction in Canada outweigh the anticipated anti-competitive effects, and those efficiencies would be lost if an order were made against the merger by the Competition Tribunal. These efficiencies may include, among other things, cost savings or dynamic improvements in innovation or product quality brought about by a transaction. Merging parties must prove their efficiencies claims.
THE MODEL TIMING AGREEMENT
The Bureau's rationale for the Model Timing Agreement is to
give the Bureau sufficient time to assess parties' efficiencies
claims after it has determined that there are anticompetitive
effects, and to determine whether Canada's efficiencies defence
should apply in light thereof. As a result, the Model Timing
Agreement will require merging parties to agree to delay closing of
their transaction and follow a detailed procedural timeline,
including making party representatives available for examination on
efficiencies claims under oath, for the assessment of their
efficiencies claims.
The review timelines under the Model Timing Agreement may be
extended by more than 100 days beyond the statutory review period
set out in the Competition Act. The review may also take
significantly longer depending on whether the Bureau needs to
assess the sufficiency of proposed remedies from an efficiencies
perspective and the time required to respond to any information
requests on the efficiencies. Certain time periods in the Model
Timing Agreement depend on the Bureau concluding that complete
information has been provided.
INFORMATION REQUIRED FOR EFFICIENCIES CLAIMS
The Model Timing Agreement states that the Bureau will generally seek the following types of information to assess efficiencies claims:
- Information on parties' operations and assets (e.g., assets and their locations, capacity utilization by product line and by facility, any constraints on production and headcount information)
- Plans for the merging parties' businesses in the absence of the merger (e.g., planned capital expenditures, cost savings plans, anticipated product introduction, and other strategies under consideration if the merger did not go forward)
- Analysis and planning documents relating to the implementation of the merger (e.g., integration plans, forward-looking costing and capital expenditures planned post-merger)
- Analysis of merger efficiencies (e.g., models or other analyses that quantify the efficiencies, as well as the documents or data relied upon in those analyses and support for any underlying assumptions)
- Information from past comparable integrations
USE OF THE MODEL TIMING AGREEMENT
An earlier version of the Model Timing Agreement has been used
to assess the efficiencies defence for at least one transaction to date. The efficiencies assessment appears
to have taken the Bureau approximately four months, following which
the Bureau ultimately concluded that the efficiencies defence
applied and that a remedy would not be required.
Of course, parties have no obligation to agree to the Model Timing
Agreement, in which case the Bureau may choose to challenge a
transaction before the Competition Tribunal. The Competition
Tribunal will then assess whether any efficiencies claims by the
merging parties are greater than and offset the anti-competitive
effects claimed by the Bureau.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.