Despite the fact that Canada’s Competition Bureau had concluded that the proposed acquisition of Canexus Corporation by Superior Plus Corp. would likely result in a substantial lessening of competition for the supply of various industrial chemical products in Canada, the Bureau issued a “no action” letter clearing the transaction under the Competition Act because of the efficiency exception contained in that Act. This action is especially significant since it marks the first instance where the Competition Bureau has publicly cleared an otherwise anti-competitive merger on the basis of the efficiency defence, without resorting to litigation before the Competition Tribunal.
The Competition Act sets out a statutory “efficiency defence” for potentially anti-competitive mergers, a defence which, according to the Bureau, may be unique to Canada. Section 96 of the Act mandates that the Competition Tribunal, the federal adjudicative body that deals with mergers under the Act, cannot make an order prohibiting a merger where the merger is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that are likely to result from the merger where those gains in efficiency would not likely be attained if such order were made. The Bureau, following its review and analysis of the proposed merger, acknowledged that it was satisfied that the efficiency gains resulting from the proposed merger were “clearly greater than the likely significant anti-competitive effects” of the merger and, as such, the Bureau likely concluded that it would not be able to successfully challenge the merger before the Competition Tribunal.
In support of its efficiency defence, Superior had provided the Bureau with detailed analyses prepared by its expert to support Superior’s claims of efficiency gains resulting from the proposed transaction. The Bureau had also retained its own external economic expert to model the likely effects of the proposed merger as well as an external efficiencies expert to evaluate Superior’s claimed efficiency gains. In coming to its conclusion that the efficiency gains clearly outweighed the anti-competitive effect (e.g. likely higher prices for some products in some Canadian markets), the Bureau considered efficiency factors such as the elimination of overhead costs, freight optimization, and the elimination of duplicate corporate services.
Closing of the proposed merger is not however a certainty as the Federal Trade Commission (FTC) in the United States has filed an administrative complaint challenging the transaction under its U.S. anti-trust laws. In announcing its decision, the Bureau noted that, during its own review, it had cooperated closely with the FTC.