North America

Fasken Martineau DuMoulin’s Huy Do and Jack Yu1 write that acquisitions of, or investments in, Canadian businesses can give rise to merger control and foreign investment reviews. The following provides a general overview of the merger control regime under the Competition Act (Canada) (CA) and the foreign investment review regime under the Investment Canada Act (ICA).

A. Merger control – Competition Act
Substantive merger provisions
The CA sets out a regime for the civil review of “mergers” (broadly defined) which the Commissioner of Competition (Commissioner) considers are likely to prevent or lessen competition substantially. All mergers may be subject to review under the CA, regardless of whether they are subject to mandatory pre-merger notification, and can be challenged pre or post-closing.

Pre-merger notification
Under the CA, parties to certain types of transactions must notify the Commissioner and provide specified information to permit the review of such mergers. Mergers that are subject to mandatory pre-merger notification may not be completed before the expiry of certain time periods.

Subject to specific exceptions, pre-merger notification in respect of certain types of transactions (e.g. acquisition of voting shares, assets or interests in combinations, as well as amalgamations and combinations) is required where the merger involves, directly or indirectly, an operating business in Canada and, where applicable, size-of-parties and size-of-transaction thresholds are exceeded.

(i) Size-of-parties threshold
There is no requirement to provide pre-merger notification in respect of a proposed transaction unless the parties to the transaction, including their affiliates, have:
(A) assets in Canada that exceed C$400 million in aggregate book value; or
(B) annual gross revenues from sales in, from or into Canada that exceed C$400 million in aggregate value.
In the case of an acquisition of voting shares, the parties to the transaction are the acquiror and the corporation, the shares of which are being acquired, i.e. target corporation.

(ii) Size-of-transaction threshold
The size-of-transaction threshold is specific to the type of transaction being undertaken. The CA contains thresholds that are specific for: (a) acquisitions of shares; (b) acquisitions of assets; (c) amalgamations; (d) combinations; and (e) acquisitions of interests in combinations.

(a) Acquisition of shares
In respect of an acquisition of voting shares, pre-merger notification is required where the target corporation and any corporations controlled by that corporation have aggregate assets in Canada, or annual gross revenues from sales in or from Canada generated from such assets, exceeding C$86 million2, and where:

  • in the case of a publicly-traded target corporation, the acquiror, including its affiliates, would own, post-transaction, more than 20 percent of the voting shares (or more than 50 percent of the voting shares, if the acquiror already owned more than 20 percent prior to the acquisition); and
  • in the case of a private target corporation, the acquiror, including its affiliates, would own, post-transaction, more than 35 percent of the voting shares (or more than 50 percent of the voting shares, if the acquiror already owned more than 35 percent prior to the acquisition.

(b) Acquisition of assets
Pre-merger notification is required in respect of a proposed acquisition of assets of an operating business where the aggregate value of those assets in Canada, or the annual gross revenues from sales in or from Canada generated from such assets, exceeds C$86 million.
(c) Amalgamations
Pre-merger notification is required in respect of a proposed amalgamation of two or more corporations where one or more of those corporations carries on (either directly or indirectly) an operating business where the aggregate value of the assets in Canada that would be owned by the continuing corporation that would result from the amalgamation or the annual gross revenues from sales in or from Canada generated from such assets, exceeds C$86 million, and each of at least two of the amalgamating corporations, together with its affiliates, has assets in Canada or gross revenues from sales in, from or into Canada, that exceed C$86 million.
(d) Combinations
Pre-merger notification is required in respect of a proposed combination of two or more persons to carry on business otherwise than through a corporation (e.g. partnerships) where one or more of those persons proposes to contribute to the combination assets that form all or part of an operating business carried on by those persons and where the aggregate value of the assets in Canada that are the subject matter of the combination, or the annual gross revenues from sales in or from Canada generated from such assets, exceeds C$86 million.
(e) Acquisitions of interests in combinations
Pre-merger notification is required in respect of a proposed acquisition of an interest in a combination that carries on an operating business other than through a corporation where: the aggregate value of the assets in Canada that are the subject matter of the combination, or the annual gross revenues from sales in or from Canada generated from such assets, exceeds C$86 million; and as a result of the proposed acquisition, the person(s) acquiring the interest, together with their affiliates, would hold an aggregate interest in the combination that entitles the person(s) to receive more than 35 percent of the profits of the combination or assets on dissolution (or more than 50 percent where the person(s) acquiring the interest are already to receive more than 35 percent of such profits or assets).

(3) Notification and review process
Where notification is required, the parties to the proposed transaction are required to wait for a 30-day period to elapse before completing their proposed transaction. During this 30-day period, if the Commissioner requires more information to evaluate the proposed transaction, he may, during the 30-day waiting period, issue a supplementary information request (SIR) and a second 30-day waiting period will commence once all of the information requested is received. Each party to a notifiable transaction must submit its own notification, which is commonly accompanied by a competitive impact submission.

Alternatively, where a proposed transaction does not raise significant substantive competition issues, the parties can apply for an advance ruling certificate (ARC). Where an ARC is issued prior to the expiration of the 30-day waiting period, it effectively terminates the 30-day waiting period and has the effect of preventing the Commissioner from challenging the proposed transaction to which it applies. If an ARC is not issued, the Commissioner may nonetheless issue a no-action letter (where he states that he does not plan to challenge the proposed transaction, but retains the right to do so within one year of closing) together with a waiver of the 30-day waiting period (if the waiting period has not yet expired).

The time required for the Competition Bureau (Bureau) to complete its assessment of the merger does not necessarily correspond with the 30-day statutory waiting periods. In its Fee and Service Standards Handbook, the Bureau identifies “service standard” periods, which are non‑binding maximum turnaround times within which the Bureau expects to complete its review. These service standard periods vary according to the “complexity” of the transaction under review. Following its receipt of a filing, the Bureau will typically classify the transaction as either “complex” or “non-complex”, in terms of the competition issues raised by the proposed transaction. The service standard for “complex” transactions is 45 calendar days, commencing the day on which a complete notification or ARC request is received by the Commissioner. For non-complex mergers, the service standard is 14 calendar days, commencing the day a complete notification or ARC request is received by the Commissioner.

Irrespective of whether an applicable waiting period or service standard period has elapsed, or if a no-action letter is issued, the Commissioner can bring an application before the tribunal for a remedy in respect of a merger within one year following the substantial completion of the merger, but not thereafter. However, this ability to challenge a merger one year after completion is not available where the Commissioner has issued an ARC in respect of that merger.

B) Foreign investment reviewInvestment Canada Act
All acquisitions of control of Canadian businesses by non-Canadians, whether direct or indirect, are subject to either notification or review under the ICA, subject to certain exceptions. Under the ICA, direct and indirect acquisitions of control by non-Canadians of Canadian businesses which exceed specified monetary thresholds, subject to certain specified exceptions, are reviewable (i.e. require the approval of the federal Minister of Industry and/or the federal Minister of Canadian Heritage (collectively, the Minister) based on a “net benefit to Canada” test). Any acquisition of control of a Canadian business by a non-Canadian which does not exceed the applicable review threshold is merely notifiable. A notification can be filed either prior to or within 30 days following implementation of the investment (e.g. closing).

In the case of corporations, an “acquisition of control” is considered to have occurred for purposes of the ICA when in excess of 50 percent of the voting shares of a corporation have been acquired by a person, or will be rebuttably presumed to have occurred when one third or more of the voting shares of a corporation have been acquired. (The presumption can be rebutted by establishing that, upon the acquisition, the corporation is not controlled in fact by the acquiror through the ownership of voting shares.) Please note, however, that notwithstanding the above acquisition of control rules the Minister has the discretion to determine that an acquisition of control in fact has occurred in relation to: an investment by a state-owned enterprise; an investment in the cultural sector by a non-Canadian; or an investment that is subject to the national security provisions of the ICA.

(1) Transactions for net benefit to Canada
In general, where the acquiror is a WTO investor, or where the target corporation is immediately prior to the transaction controlled by a WTO investor:

  • direct acquisitions of a Canadian business require review and approval only if the enterprise value of the entity carrying on the Canadian business and all other entities in Canada control of which is being directly or indirectly acquired in the transaction is equal to or greater than C$600 million;3 and
  • indirect acquisitions (e.g. acquisitions of a foreign corporation that controls4 a Canadian corporation carrying on the Canadian business) are not subject to review (unless the Canadian business involves a cultural business, in which case the thresholds discussed below apply).

For purposes of the ICA, the relevant “enterprise value” will be determined by:

  • for a publicly-traded Canadian business, calculated as its market capitalisation, plus its total liabilities excluding its operating liabilities, minus its cash and cash equivalents. Market capitalisation will be determined at the point the investor makes an ICA filing.
  • for a private Canadian business, calculated as its total acquisition value, plus its total liabilities excluding its operating liabilities, minus its cash and cash equivalents; and
  • for a Canadian business acquired through an asset acquisition, calculated as its total acquisition value (i.e. total consideration payable for the acquisition), plus the liabilities that are assumed by the investor, minus the cash and cash equivalents that are transferred to the investor, all as determined in accordance with the transaction documents that are used to implement the investment.
    • However, the above C$600 million enterprise value threshold does not apply to acquisitions made by State-Owned-Enterprises (SOE’s), which will remain subject to the former threshold (C$369 million in “asset value”). In addition, if the Canadian business being acquired is engaged in a cultural business, or if the investor is not a WTO investor and the target is not controlled by a WTO investor, the review thresholds for direct and indirect acquisitions of Canadian businesses by non-Canadians are generally C$5 million for direct acquisitions and C$50 million for indirect acquisitions.

      ‘WTO investor’ is a defined term in the ICA. The rules as to whether a person is a WTO investor for purposes of the ICA are complex. Very generally, WTO investors are nationals, permanent residents and governments of WTO Members, and entities ultimately controlled by them. ‘WTO Members’ are the member countries of the World Trade Organization. Therefore, in direct WTO investments and instances where thresholds are not met, parties are only subject to notification and not review. Nonetheless, such transactions may still be reviewable under National Security grounds.

      Where an investment is reviewable by the Minister, after receiving the application for review, the Minister has 45 days to review it and decide whether to approve the investment on the basis that it is likely to be of “net benefit to Canada”. If no notice is sent by the Minister to the applicant within the above 45-day period, the investment will be deemed to have been approved. The Minister may extend the 45-day review period by 30 days or such longer period as the applicant and the Minister may agree. If the applicant does not receive notice of the Minister’s decision within such further 30-day-or-longer period, the investment will be deemed to have been approved. If the Minister within such 45-day period, or such further period, informs the applicant that he will not allow the acquisition because it will not be of net benefit to Canada, the Minister must inform the applicant of its right to make further representations and to submit undertakings within a further 30-day period, or such longer period as the applicant and the Minister agree.

      (2) National Security Review (NSR)
      As a result of amendments to the ICA in 2009, the Governor in Council (i.e. federal cabinet) may review an investment by a non-Canadian in a business (including minority investments) where the Minister has reasonable grounds to believe that such an investment could be injurious to national security. The review of an investment on the grounds of national security may occur whether or not an investment is subject to review on the basis of net benefit to Canada or notification under the ICA.

      The ICA gives the cabinet the ability to take any measures necessary with respect of the investment to protect National Security. The cabinet is thus given a further 20 days to achieve this after recommendations are made by the minster at the last stage noted above.

      _____

      Endnote

      • Huy Do is a partner and Co-Leader of the Antitrust/Competition & Marketing Law Group of Fasken Martineau DuMoulin LLP and Jack Yu is an associate within that group.
      • The size-of-transaction threshold amounts are adjusted annually based on Canada’s annual Gross Domestic Product.
      • This threshold will increase to C$800 million in 2017 then to C$1 billion in 2019.
      • For this purpose, an entity controls a corporation either by owning a majority voting interests, or by control in fact (e.g. if one shareholder or a group of shareholders holds 10% or more of the voting interests, this may be control in fact). As well, the Minister may determine whether an entity engaged in a “cultural” business is or is not controlled in fact by another entity.

      Email:
      hdo@fasken.com
      jyu@fasken.com
      Website: www.fasken.com

[sharethis]
Related Articles by Firm
Canada is Open for Business
Trump and the Changing Political Landscape in the US ...
Primer on Procurement Rules in the New Canadian FTA
Fasken Martineau Releases Primer on Procurement Rules in the New Canadian Free Trade Agreement ...
Canada: Donald Trump, Paris and the Climate Policy Two­-Step
Will the U.S. withdrawal from the Paris Agreement fundamentally alter Canada's course?
China’s Priorities for a Free Trade Agreement with Canada
Analysis of Chinese language commentary, news media and academic studies, reveal some of China's top priorities for a free trade agreement with Canada ...
Canada: New Authorities under Vanessa's Law
On June 18, 2016, the Federal Department of Health published a Notice of Intent to amend the Food and Drug Regulations and the Medical Devices Regulations to implement key authorities under Vanessa's Law...
Canada: Consultation on New Health Regs for Self-Care Products
Health Canada is seeking consultation on new standards for self-care products, over-the-counter drugs, natural health products and cosmetics ...
Private right of action under Canada’s Anti-Spam Law
As of July 1, 2017, individuals and organizations will be entitled to institute a "private right of action" before the courts against those that contravene certain provisions of Canada's Anti-Spam Law ...
New Federal Consumer Protection Regime for Bank Customers
Canada: The government has introduced a bill which proposes to create a comprehensive federal consumer code and strengthen federal jurisdiction over provincial jurisdiction with respect to products and services of banks.
Canada: Alberta's Renewable Electricity Program
Alberta released details of the Renewable Electricity Program to accelerate the development of renewable power generation through a competitive bid process.
Certainly Uncertain: Construction Trusts after Iona in Canada
A recent decision clarifies the law regarding provincial statutory trusts in the insolvency context, particularly in the construction sector.
The Fight against Climate Change and the Overhaul of Canada's Environment Quality Act
A bill allows government to require a "climate test" from a project proponent.
Health Canada Is Cracking The Whip On Advertising Violations
On January 21, 2016, various hospitals, natural health product manufacturers, physicians and pharmaceutical companies found themselves specifically named by Health Canada in a published list of health product advertising complaints ...
Canada: New Strategic Plan for the Patented Medicines Prices Review Board
The Strategic Plan comprises a fresh vision, a revised mission statement and four new strategic objectives ...
Transport Canada Promises New Drone Regulations
Increase in popularity has had a direct effect on risks involved for the safe use of regular aircraft ...
N. America: Northern Gateway Pipeline
Province must consult and decide but may impose conditions
Canada: Tinkering with Title - Don’t Get Caught by Surprise
The Mining Amendment Act 2015 proposes a new electronic mining lands administration system in Ontario.
New Lobbyists’ Code Will Restrict Dealings with Canada’s Federal Government and Agencies
Canada's new Lobbyists' Code of Conduct will significantly restrict the activities of lobbyists and others seeking to influence federal decision making.
Righting a Wrong: Canadian Regulators Improve the Rights Offering Regime
Canadian regulatory authorities recently overhauled how prospectus exempt rights offerings are to be conducted going forward.
A change of role for a legal representative under the new Clinical Trials Regulation 536/2014?
The roles and responsibilities of the legal representative set out under Clinical Trials Directive 2001/20/EC are likely to change under the new Clinical Trials Regulation 536/2014.
Historic Court of Appeal Decision in Dunkin' Brands: Three Lessons for Franchisors in Canada
The Quebec Court of Appeal has specified the intensity of the franchisor's implied obligations in what is the most significant franchise case in Québec since 1998.
New Compliance Form and Fee for Employers of Foreign Work Permit Applicants in Canada
Employers whose foreign employees must apply for a work permit or extension should be aware of a new Compliance Form and Compliance Fee that they must submit before the person applies for the work permit in Canada.
Use of Trademarks As Metadata & #Hashtags in Canada
A recent decision of the Federal Court of Canada provides guidance on the proper use of IP in this digital world that brand owners need to know now.
Claims that Involve a Fixed Dosage and Schedule Can Constitute Patentable Subject Matter
The Canadian Intellectual Property Office has issued a revised guidance which provides clear instructions on how to approach medical use claims and determine whether such claims are eligible for patent protection.
The Application of the Bhasin Principle of Good Faith in Canada: An Early Example
A recent decision from the Supreme Court of British Columbia provides an early example of how courts will apply the general principle of good faith in Canada.
The TPP Agreement: A Canadian Business Perspective
The TPP will impact goods access and other aspects of Canadian businesses.
Budget 2015 - Canada
The Budget 2015 contains several significant proposals to amend the Income Tax Act while also providing updates on previously announced tax measures and polices. Here are some highlights.
Foreign Corruption and the Integrity Framework in Canada: A Difficult Corporate Board Dilemna
Canada's Integrity Framework raises difficult choices for corporate board directors and management regarding voluntary disclosure of prior foreign corrupt activity of an acquired company.
Canada-EU Comprehensive Economic and Trade Agreement Negotiation Completed: Additional Protection for Innovative Pharmaceutical Products
If ratified, key intellectual property provisions in the Canada-EU trade pact will provide additional protection for innovative pharmaceutical products.
An Update on the Proposed EU Revisions to the Regulation of Medical Devices
The proposed European regulatory regime will merge the directives on Medical Devices and Active Implantable Medical Devices into a single regulation and wholly replace the current regulation on In Vitro Diagnostic Medical Devices.
UK FCA consults on requirements for reports on payments to government
While Canada does not currently have a reporting regime for payments to governments, a process is underway to ensure that a regime is implemented in the near future.
Trademark Use: an Important Shift in Canada
Bill C-31, which was given royal assent on June 19, 2014, will eliminate the requirement that a trademark be used in order to be registered in Canada.
Intellectual Property Protection - Industrial Designs
Many companies will consider the availability of and merits of seeking patent and/or trade-mark registration. However, one form of IP protection that is often overlooked is an industrial design registration.
Protocol to Amend the Canada-UK Tax Treaty
The Canada-United Kingdom Tax Convention was amended with the signing of a protocol on July 21, 2014. This article will describe some highlights of the Protocol and comment on the impact of these provisions on cross-border tax issues between Canada and the ...
The end of the Canadian "iPod Tax" saga
The "Certain Televisions Remission Order" confirms that, in fact, there is not now, and never actually was, "tax" on "iPod" imports to Canada.
Updating Canadian Trademark Filing & Registration Strategies
Here are some key trademark filing strategies for avoiding or minimizing the potential impact of recent amendments to the Canadian trademark landscape.
The Canadian insurance M&A environment
There have been a significant number of insurance company M&A transactions in the Canadian market in recent years, a trend expected to continue. Fasken Martineau DuMoulin have surveyed the acquisition agreements from these transactions and analysed ...
Related Articles
A roadmap for response and remediation
Cybersecurity professionals are no doubt familiar with the oft-repeated adage that there are only two kinds of companies — ‘those that have been breached’ and ‘those who do not know it yet’ ...
Cybersecurity a boardroom priority
“Nothing is certain but death, taxes and cyber-attack” - By Rory Macfarlane, Partner, Ince & Co Hong Kong ...
How the challenges of cybersecurity reflect those in the legal profession
From a non-technical, user or customer perspective, most people are happy that the IT folks “just make it work” ...
Related Articles by Jurisdiction
New Lobbyists’ Code Will Restrict Dealings with Canada’s Federal Government and Agencies
Canada's new Lobbyists' Code of Conduct will significantly restrict the activities of lobbyists and others seeking to influence federal decision making.
Canada: Alberta's Renewable Electricity Program
Alberta released details of the Renewable Electricity Program to accelerate the development of renewable power generation through a competitive bid process.
New Compliance Form and Fee for Employers of Foreign Work Permit Applicants in Canada
Employers whose foreign employees must apply for a work permit or extension should be aware of a new Compliance Form and Compliance Fee that they must submit before the person applies for the work permit in Canada.
Latest Articles
Thailand: New Amendment to the Labor Law
The Labor Protection Act B.E. 2541 (“LPA”) was first enacted in February 1998; the LPA has been amended several times ...
New Ministerial Decision brings clarity to Private Joint Stock Companies
The private joint stock company is one of the forms of company contemplated by UAE Federal Law No. 2 of 2015 concerning commercial companies ...
Former Myanmar deputy finance minister joins Zico
Maung Maung Thein joins as executive chairman of local subsidiary Zico Law Myanmar.