A new report says lax merger laws in Canada underestimate the harms of competition from mergers and overestimate their benefits.
Loopholes in Canada’s merger law have failed to prevent the kind of acquisition that allows large companies to “quench competitive threats and seize their dominance,” according to the Center for National Governance Innovation. economic.
Keldon Bester, a member of the center and the report’s author, said Canada has “lagged behind” other jurisdictions such as the United States.
He compared Canada’s existing regime to a faulty brake system. “Our legislation today is like the brakes on a car going downhill. We know we’re going downhill, but we want to get there a little bit slower,” he said in an interview.
His report adds that the “easiness” of merger laws is particularly relevant to the evolving digital economy landscape, which is fraught with unique challenges.
Mergers, which are transactions in which two companies combine into one, may be reviewed by Canada’s competition watchdog to determine if they are harmful to competition.
However, since the promulgation of the Competition Law in 1986, the Competition Bureau has only challenged 18 mergers. And what is particularly alarming, the report said, is that the agency has never won a challenge over the final ruling.
A recent poll shows Canadians are concerned about the state of affairs.
According to an Ipsos survey conducted in January, 88% of respondents agreed that more business competition is needed “because it’s too easy for big businesses to take advantage of Canadians.”
Similar proportions agree that more competition between businesses can lead to more choice and lower prices for consumers.
The survey of 1,001 Canadians aged 18 and over was conducted January 14-17. Ipsos says its online results are weighted and comparable to a traditional poll with false positives. number plus or minus 3.5 percentage points, 19 times out of 20 .
According to the CIGI report, one of the problems with the Competition Bureau is the threshold for notification of a transaction.
Under the Competition Law, parties to a merger proposal must notify the Competition Bureau if a transaction meets certain financial thresholds. But those thresholds do not include the value of the transaction itself, the report said.
That contrasts with the United States, where the Federal Trade Commission has been notified of mergers that exceed a certain transaction value.
Earlier this year, the commission and the US Department of Justice announced a joint public investigation aimed at modernizing merger guidelines to “better detect and prevent anticompetitive transactions.”
By comparison, Canada is “later,” says Bester.
Another problem with the Competition Bureau is that “the level of interference in a merger is quite high,” added Bester, a researcher who studies monopoly and competitive powers in Canada.
That’s because the current law takes into account the increased efficiency that could come from mergers, he said. Harms from reduced competition are allowed if the proposed merger would result in supposedly greater cost savings.
There is also a tendency, he said, against blocking mergers altogether.
Instead, the law favors negotiated agreements that include concessions or remedies that can resolve some competition issues. These remedies do not have to completely address the reduction in competition caused by mergers, the report said.
The report proposes a number of changes to Canada’s merger law.
Recommendations include expanding the scope of transactions to which the Competition Bureau is notified, extending the amount of time it has available to the Competition Bureau to block a harmful merger, and changing the criteria used to assess whether whether a transaction should be blocked.
The most famous proposed merger in Canada today is arguably Rogers’ proposed takeover of Shaw, a potential $26 billion transaction.
Bester said that if Canada had stronger merger laws, the Rogers-Shaw deal would be “under water” due to the lack of competition in the telecommunications industry.
“If we had stronger merger laws, this merger wouldn’t have been proposed in the first place.”
However, Canada’s competition watchdog tried to block the deal, arguing that it would significantly reduce competition and lead to higher phone bills.
Rogers and Shaw are scheduled to appear before the Competition Court in November, where they will argue in favor of the transaction.
Although the federal Liberal Party has made recent amendments to other parts of the Competition Act, Canada has not touched on the merger law – an issue that Bester blames on a “legal and finance” benefit from their permissiveness.
Banks, law firms and private equity groups “are interested in very lax merger laws because it increases their profits,” Bester said.
“We really didn’t do anything today on the side of merger, so Canada is really behind the ball.”
This Canadian Press report was first published on October 1, 2022.