On October 6, 2011, the final version of the newly revised Merger Enforcement Guidelines (MEGs) was released by the Competition Bureau (Canada). The revised MEGs, which replace the previous guidelines issued in 2004, can be found at the following link: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03422.html
The revised MEGs were released after a first round of consultation on whether the previous MEGs required amendment (which consultation was announced in September 2010) and a second round of consultations that followed the June 27, 2011, issuance of draft revisions for comment.
The revised MEGs do not significantly change the Bureau's substantive approach to merger review, but do make several changes that are important to note, including:
Placing less emphasis on market definition
The revised MEGs adopt a more flexible approach to defining markets, clarifying that, while market definition is generally undertaken by the Bureau, it is not a mandatory step in the Bureau's merger review. The revised MEGs explain that the Bureau may use tools other than market definition for determining the competitive effects of a merger, including looking to ordinary-course documents created by the merging parties, or first-hand observations of the industry by market participants.
Putting greater focus on vertical and conglomerate mergers
With respect to non-horizontal mergers, the revised MEGS provide greater guidance on how the Bureau views market power both in terms of monopsony power and countervailing purchasing power. The MEGs explain that the Bureau will focus on whether the merger is likely to lead to foreclosure of inputs or customers. The revised MEGs do also, however, note that non-horizontal mergers are less likely to harm competition.
Addressing the issue of interlocking directorates and minority interests
The Competition Act defines merger broadly to include the acquisition of a “significant interest”. The revised MEGs set out a broader set of factors that the Bureau will look at when determining whether the acquisition of a minority interest (or other arrangement including interlocking directorates) will result in the acquisition of a significant interest.
Reflecting the approach to competitive effects that is seen in the US Horizontal Merger Guidelines
The revised MEGs have adopted an approach to assessing differentiated product markets that is similar to the US approach. The revised MEGs also provide further guidance on the assessment of competitive effects in situations where there are many bidders or potential suppliers that are similarly situated to the merging parties.
Providing a revised interpretation of the efficiencies defence
The revised MEGs update the discussion of the “efficiencies defence” that was set out in the Bureau's 2009 Bulletin on Efficiencies in Merger Review (now superseded by these MEGs). The revisions emphasize the onus on the merger parties to provide evidence of efficiencies in a detailed and timely manner. This will compel parties to conduct an analysis of efficiencies early on in the process if they believe that an efficiencies argument is relevant.
The revised MEGs do maintain, however, many integral aspects of the previous MEGs, including the hypothetical monopolist test to define product markets, as well as the 35-percent market share safe harbour threshold, below which transactions generally will not be challenged.
The MEGs are an important guide for competition practitioners and their clients when attempting to determine how the Competition Act's merger review provisions will be applied to a particular merger. These revised MEGs provide therefore an important update on the Bureau's current approach to merger review and will therefore be valuable to dealmakers and their competition counsel.