The Canadian Competition Authority announces a decrease to $93 million of the pre-merger notification thresholds for 2021

In what could be an extraordinary (if not unique?) move, Canada’s Competition Bureau (‘Bureau’) has announced that the pre-merger notification transaction size threshold for acquiring an undertaking in 2021 will decrease by $3 million from the 2020 level of $96 million [1] to $93 million [2]. The Bureau assists the Commissioner of Competition (‘Commissioner’) in the administration and enforcement of the Competition Act (‘Act’) [3].

The formal announcement of the threshold level was made by the Minister of Innovation, Science and Industry on 13 February 2021 [4]. The Commissioner reports to Parliament annually through this Minister [5]. When the Act came into force in 1985, the amount was originally set at $70 million [6].

There is also a second test based on the size of the parties to the transaction when assessing whether to notify. Parties, and any affiliates, must have aggregate assets in Canada, or annual gross revenues from sales in, from or into Canada, in excess of $400 million. When a proposed merger reaches these two levels, the parties to the transaction must notify the Bureau in accordance with s. 114(1) of the Act [7].

The indexing mechanism to establish the annual threshold level for a business acquisition is found in s. 110(8) of the Act, whereas the formula to determine the party and transaction size that triggers the notification is outlined in the Notifiable Transactions Regulations [8]. The Minister of Innovation, Science and Industry reviews these thresholds annually.

The Minister may review the threshold using the indexing mechanism set out in the Competition Act, by prescribing a different amount to be established by regulation, or may leave the threshold unchanged [9].

Although mergers of all sizes and in all sectors of the economy are subject to possible review, the notifiable threshold provisions make clear that companies must notify the Commissioner if a proposed merger, acquisition or other proposed transaction exceeds the threshold levels. The Commissioner then reviews these notifiable transactions to determine if they are likely to prevent or lessen competition substantially in a definable market [10].

Covid-19 effect on Canadian economy

There is little doubt that the reduced threshold levels are due in part to Covid-19 and its negative impact on the Canadian economy. It was reported by the government that the economy contracted by 18% between February and April 2020 [11]. In February 2021, the Governor of the Bank of Canada set out the effect the pandemic has had on Canada’s economy, warning that recovery will take time. He said:

COVID-19 has touched every Canadian in every corner of the country. The pandemic is, first and foremost, a human tragedy, taking the lives of more than 20,000 Canadians, and it’s not over. It has also led to an economic downturn unlike anything we’ve ever seen. (…)

We have already climbed a long way back from the very deep economic hole we were in last spring. (…) [W]e expect a solid rebound in the immediate months ahead. How much the economy can re-open and the strength of this rebound will depend on the path of the virus, including the new variants. But with vaccinations expected to ramp up, we can be more confident in sustained strong growth through the second half of the year and into next year.

Nevertheless, it will be some time before we see a complete economic recovery [12].

Recovery through economic stimulus and competition

According to the Commissioner, recovery from the Covid-19 pandemic in Canada will be achieved through a combination of economic stimulus and competition. The government is expected to announce a major stimulus package in the upcoming budget [13], which should bolster the competitive process during recovery, and competition will improve the effectiveness of government support. Explained the Commissioner:

More than ever, Canadians need [Commissioner’s emphasis] the protection and benefits that competition provides. (…) Many of our foreign counterparts are already in the process of updating their own competition laws, and I look forward to continuing this work with the policy-makers responsible for the design of the Competition Act.

However, the scope of competition in Canada extends well beyond the pages of the Competition Act. Policy-makers at all levels of government have a role to play in protecting and encouraging competition as they balance their many competing policy priorities. As we work to recover, we have an opportunity to create an environment that brings down barriers, and allows Canadians to re-enter the competitive process, presenting new challenges to entrenched incumbents [14].

To paraphrase Charles Dickens from 1854, these are indeed ‘hard times for these times’. The Covid-19 pandemic has already claimed the lives of over 2,531,000 people worldwide [15], with little end in sight, notwithstanding a variety of vaccines now on the market. The global economy has seen a massive downturn as a result of Covid-19 and a substantial government commitment is required in order to return it to pre-pandemic levels. Reducing the pre-notification thresholds is graphic proof of the effect the pandemic has had on economic growth in Canada. But as the Commissioner says, it will be a combination of economic stimulus and the forces of competition, underpinned by lower prices, consumer choice, innovation and economic efficiency, which will guide Canada (and the world) out of this crisis. It is only a matter of time before this process begins [16].

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  • Commonwealth Secretariat (London)

Quotation

Gavin Murphy, The Canadian Competition Authority announces a decrease to $93 million of the pre-merger notification thresholds for 2021, 11 February 2021, e-Competitions February 2021, Art. N° 99487

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