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Competition Law

Canada: Merger review developments for 2024

In brief

Modernization of Canadian competition law and foreign investment review is well underway. Recent and further proposed legislative amendments will impact how dealmakers assess substantial and procedural regulatory risk for mergers. This update summarizes the recent legislative amendments to the Competition Act (“Act”) that came into effect on 15 December 2023 and proposed legislative amendments to the Act and Investment Canada Act (“ICA”). Dealmakers should be aware of these amendments as they plan mergers involving Canadian businesses in 2024.

In more detail

Merger review in Canada is changing through targeted amendments to the Act1,2 and ICA3.  The pre-merger notification and substantive assessment provisions under the Act are in the process of being reformed and the ICA is being strengthened to allow for more substantive reviews of investments on the grounds of national security. 

These amendments represent the Government of Canada’s sustained efforts to modernize federal competition and foreign investment laws, which will impact the regulatory review of mergers in the following ways: 

  • More Mergers Subject to Pre-Closing Notification. Foreign businesses that sell into Canada without significant Canadian assets typically do not meet the current financial thresholds for mandatory pre-merger notification. Adjustments to the financial test will require businesses to account for their sales into Canada, including those generated from assets located outside of Canada, thereby capturing a larger group of buyers and sellers within Canada’s mandatory pre-merger notification regime. 
  • Increasing Importance of Market Shares in Competition Analysis. Canadian law currently prohibits the Competition Tribunal from finding that a merger is anti-competitive based solely on the market share of the merging parties. Proposed amendments will repeal this prohibition, which may result in greater emphasis on market shares and concentrations in contested mergers. In turn, merging parties will need to take care in defining the proper geographic and product markets, as this will impact the calculation of shares and concentration for the merger. This change may also pave the way for the imposition of structural presumptions against mergers that exceed a certain share threshold. 
  • Inclusion of New Factors in Assessing Competitive Effects. The government has proposed additional factors that will be relevant to the competitive effects analysis, including the effect of the merger on labour markets, changes in market share and concentration, and the potential for express or tacit coordination among competitors. While the Competition Bureau already considered these factors in its competitive effects analyses, their explicit inclusion signals the government’s desire to align Canada’s competition law policy more closely with its global counterparts. In particular, the inclusion of labour markets aligns the Competition Bureau with regulators in the United States, United Kingdom, and Europe, which are increasingly scrutinizing labour markets.
  • Efficiencies Defense Repealed. The efficiencies defense was unique to Canada and allowed the Competition Tribunal to permit anti-competitive mergers to proceed on the basis that the merger would result in efficiency gains that were greater than and offset the anti-competitive effects. While few anti-competitive mergers prevailed by deploying the efficiencies defense, it was a lightning rod in Canadian competition policy and was repealed as of 15 December 2023. 
  • Potential Closing Delays in Complex Mergers. Proposed amendments will allow the Competition Bureau to temporarily restrain closing while the merger is under review and/or challenge before the Competition Tribunal. A merger will be prohibited from closing until the application for an interim order to block closing has been disposed of by the Competition Tribunal. This may result in delays that businesses should consider when assessing the risks and benefits of substantively complex mergers. 
  • Increased Risk of Post-Closing Scrutiny for Non-notifiable Mergers. Proposed amendments will allow the Competition Bureau to review a non-notifiable merger for up to three years post-closing (an increase from the current one-year post-closing review period). The longer review period will increase the risk of scrutiny for certain types of non-notifiable mergers. The Competition Bureau, through public statements, has signaled its intention to focus on “killer” acquisitions, acquisitions of nascent competitors, and roll-up acquisitions by private equity firms. Businesses will need to consider both the short and medium term when assessing the substantive risk associated with a non-notifiable merger post-closing as business practices and further industry consolidation may become relevant considerations.
  • National Security Risk. Proposed amendments to the ICA will require non-Canadian investors to file pre-closing notifications if their investments in a Canadian business fall within prescribed business sectors that are deemed to raise potential national security risk. While the prescribed business sectors will be identified through regulations that will be released at a future date, early indications are that these sectors will be similar to and reflect the categories set out in the current Guidelines on the National Security Review of Investments. Broader geopolitical risks must also be factored into investing in Canada with respect to both the target’s business activities, and the identity of the investor.

1 Bill C-34, “An Act to amend the Investment Canada Act” (“Bill C-34“), which proposes to strengthen the national security provisions of the Investment Canada Act. Bill C-34 is expected to receive royal assent in early 2024. See our recap of the proposed amendments for Bill C-34.

2 Bill C-56, the “Affordable Housing and Groceries Act” (“Bill C-56“), broad legislation which proposed targeted amendments to the Competition Act received royal assent on 15 December 2023. See our recap of the proposed amendments for Bill C-56.

3 Bill C-59, “An Act to implement certain provisions of the fall economic statement tabled in Parliament on 21 November 2023″ and certain provisions of the budget tabled in Parliament on 28 March 2023” (“Bill C-59“), broad legislation which proposes further targeted amendments to the Competition Act. Bill C-59 was tabled on 30 November 2023. See our Year in Review, which discusses the Competition Act amendments proposed in Bill C-59.

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Arlan Gates practices commercial and regulatory law as a member of Baker McKenzie's Global International Commercial & Trade and Antitrust & Competition groups. He leads the Canadian Antitrust, Competition and Foreign Investment Practice, which has been ranked by The Legal 500 and Chambers Canada. He is also ranked by Chambers Canada and by Best Lawyers in the area of advertising, marketing and data protection law and leads the Canadian Advertising, Marketing and Regulatory Practice, providing support to domestic and international businesses on regulatory aspects of market entry and ongoing commercial operations in Canada and abroad. Arlan joined Baker McKenzie as a summer associate in 1999 and has also worked in the Firm's Sydney office. Arlan regularly advises on Canadian and international merger control, foreign investment and national security in corporate and commercial transactions, including under the Canadian Competition Act and the Investment Canada Act. He also advises on competition investigations and inquiries by the Canadian Competition Bureau, and provides competition law advice on pricing policies, distribution arrangements, joint ventures and other competitor collaborations, cartels, abuse of dominance, and the implementation of industry-tailored compliance programs.

Author

Justine Johnston practices commercial and regulatory law as a member of Baker McKenzie’s International Commercial Practice Group and the Global Antitrust & Competition Group focusing on competition/antitrust law, foreign investment review, and marketing/advertising. Justine advises clients on all aspects of Canadian competition law and foreign investment review, with a particular focus on obtaining competition clearance in domestic and multi-jurisdictional mergers and joint ventures. She also provides strategic advice to clients regarding criminal and civil investigations, including allegations of conspiracy and abuse of dominance, pricing and distribution practices, and other compliance matters. Justine regularly advises clients on the application of the Investment Canada Act, and has recent experience guiding clients through industrial, cultural and national security processes and reviews. In addition, she has significant experience working with government and public relations advisors in connection with securing regulatory approvals for high-profile transactions.

Author

Jing is an associate in Baker McKenzie's International Commercial Practice Group and the Global Antitrust & Competition Group in Toronto. Prior to joining the Firm, Jing was an associate in the Toronto office of a leading Canadian law firm where she practiced competition and foreign investment law. Jing advises clients on all aspects of competition law, including merger review, cartel investigations and regulatory compliance. Jing has experience working on complex and high profile cross-border merger transactions, securing merger control clearance, as well as civil class action arising from alleged infringements of the Competition Act. As part of her practice, Jing has advised clients across various industries including pharmaceuticals, energy, retail, private equity, hospitality and manufacturing. Jing also has experience with the Investment Canada Act and has assisted foreign investors seeking regulatory approval for their investments.

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