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Article Excerpt
Anthony F. Baldanza , Angela Di Padova , Huy A. Do , Mark D. Magro , Leslie Milton Douglas C. New Mark D. Penner , and Stuart Richards
MERGERS
Merger Review Akzo Nobel N.V. / Imperial Chemical Industries PLC
On December 14, 2007, a consent agreement between the Commissioner of Competition and Akzo Nobel N.V. was filed with the Competition Tribunal, which provides for the divestiture of certain paint brands and other assets following Akzo's acquisition of Imperial Chemical Industries PLC. Netherlands-based Akzo owns and sells a number of paint brands in Canada, including Sico, Para, Betonel and Crown Diamond. ICI, based in the U.K., owns brands in Canada such as CIL, Glidden, Colour Your World and Ralph Lauren.
The substantial lessening and/or prevention of competition sought to be remedied was in respect of the wholesale supply of decorative coatings in Quebec. Under the consent agreement, Akzo agreed to divest the Para business (including a production facility in Ontario), and the Crown Diamond brand and related assets. Of note, Akzo also agreed to a behavioural remedy wherein it will, for a period of five years, cease all programs that reward retailers in the province of Quebec for the following: (1) carrying only Akzo brands; or (2) the number of Akzo brands purchased.
CHUM Ltd. / Bell Globemedia Inc. In the matter of the proposed merger of the television broadcasting operations of CTVglobemedia Inc. (then Bell Globemedia Inc.) and CHUM Ltd., the Competition Bureau concluded that the merger was unlikely to result in a substantial lessening or prevention of competition, and that, as such, no action by the Commissioner was warranted. In coming to that conclusion, the Bureau noted in its Technical Backgrounder in respect of that decision that, in its view, while CTV, given its strong position in top-rated television programming, held a certain degree of market power in the sale of advertising pre-merger, market power would not be enhanced by acquiring the CHUM assets. This conclusion was supported, in the opinion of the Bureau, by the fact that there was only a marginal degree of overlap between top-rated and lower-rated programming that characterized the respective CTV and CHUM broadcast schedules, and that with respect to advertising services where top-rated exposure was not critical, remaining competition would be sufficient to ensure that there was no reasonable prospect that CTV could effect a material price increase.
Abitibi-Consolidated Inc. / Bowater Incorporated
The Competition Bureau released a technical backgrounder on October 30, 2007, in respect of its review of the merger between Abitibi-Consolidated Inc. and Bowater Incorporated. Abitibi is a global forest products company headquartered in Montreal, Quebec, with ownership interests in paper mills, sawmills and other facilities in Canada and abroad. Bowater is also a forest products company, which is headquartered in Greenville, South Carolina; it owns and operates paper mills primarily in Canada and the United States.
The Bureau's investigation of the parties' proposed transaction was concentrated on six product markets where overlap existed: (i) softwood lumber; (ii) market pulp;1 (iii) wood chips; (iv) roundwood/logs; (v) uncoated groundwood (UGW) papers; and (vi) newsprint. For each market, the Bureau concluded that the parties' proposed transaction would not likely result in substantial prevention or lessening of competition (SPLC) for the following reasons:
Softwood lumber: Less than 10% post-merger share in a North American market.
Market pulp: Less than 10% post-merger share in a North American market.
Wood chips: The parties were found to compete in both the upstream and downstream segments of the wood chips market (wood chips being a by-product of sawmills used to produce pulp); despite sales to third parties, both parties were net purchasers of wood chips. Examining the Saguenay-Lac-St-Jean area of Quebec and the Thunder Bay area of Ontario, the Bureau concluded that the parties' proposed transaction would not likely result in an SPLC, having regard to, among other things, the existence of long-term formal contracts for wood chip sales and interdependence among certain sellers and purchasers, which would significantly constrain the ability of the merged entity to exercise market power.
Roundwood/logs: An SPLC was found to be unlikely having regard to, among other reasons, the significant regulatory oversight in Ontario and Quebec for this product.
UGW papers: Although the merged entity would have high market shares for certain grades of UGW paper, customers expressed confidence that the merged entity would not be able to exercise market power given effective remaining competition, and in particular, customers' minimal switching costs to change suppliers and ability to substitute a different UGW paper grade.
Newsprint: Finding the geographic market for newsprint to be Eastern Canada, the Bureau assessed the post-merger market share for newsprint to be in excess of 35%; therefore, there was a prima facie concern about potential market power. Despite finding significant barriers to entry and limited foreign competition, on the whole, the Bureau concluded that there was insufficient evidence to support an application for remedies to the Tribunal in respect of newsprint. More specifically, while there were conditions that supported non-cooperative coordination among suppliers in Eastern Canada (e.g. small number of firms with high levels of concentration, inelastic demand, high entry barriers, a homogeneous product, and a high degree of transparency in the industry), coordination would in fact be difficult to effect given, among other things, declining demand for newsprint and recent examples of competitors winning business on clear price competition.
Moreover, there would be effective remaining competition post-transaction. In particular, the Bureau observed that competitors had an ability and willingness to decrease exports in favour of sales in Eastern Canada in the event of a material increase in price, and that customers enjoyed low switching costs. Notwithstanding the decision not to challenge the parties' transaction, the Commissioner retained the right to bring proceedings before the Tribunal in respect of the transaction within three years of it being substantially completed.
Labatt/Lakeport In our August 2007 Bulletin2, we reported on the important decision of the Competition Tribunal in respect of this merger in which the Tribunal refused to grant the Commissioner of Competition's application for an injunction in respect of the Labatt acquisition of Lakeport on the basis that the Commissioner had not demonstrated that the Tribunal's ability to eliminate the substantial prevention or lessening of competition post-merger would be substantially impaired.
The Commissioner appealed the Tribunal's decision to the Federal Court of Appeal (FCA) and, earlier this year, the FCA dismissed the Commissioner's appeal, agreeing with the Tribunal that the Commissioner must establish that, absent an order, the Tribunal's remedial powers post-merger would be substantially impaired. The FCA noted that the Commissioner had not discharged this burden.
Merger Remedies Template Consent Agreement for Mergers On May 1, 2007, the Bureau published an Outline Consent Agreement (OCA) to complement the Information Bulletin on Merger Remedies in Canada released in September 2006. The OCA is intended to provide further guidance on the objectives and general principles applied by the Bureau when seeking remedies to resolve competition concerns arising from a proposed transaction. For the Bureau, the OCA will serve as a starting point for the negotiation of consent agreements, with the terms of the actual negotiated agreement being tailored to the specific facts of a given case.
As expected, certain terms of the OCA give to the Commissioner powers that may be too onerous in certain circumstances or for certain parties. For example, the OCA provides that the Commissioner is responsible for appointing (rather than simply approving) a Hold Separate Manager, Hold Separate Monitor and Divestiture...
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