Law Times

Law Times • sepTember 19, 2016 Page 11 www.lawtimesnews.com 'Mega mergers' make for challenging times BY JIM MIDDLEMISS For Law Times I ncreased globalization and the rise of "mega mergers" among competitors within in- dustries are making for some interesting challenges for com- petition lawyers when it comes to cross-border mergers and get- ting regulatory approval. "Things are getting tough- er, there's no doubt about it," says Dany Assaf, co-chair of the competition and foreign invest- ment review practice at Torys LLP in Toronto. "Enforcement has ramped up globally. The co-ordination [among global competition regu- lators] is getting more integrated." The U.S. Federal Trade Com- mission has taken a particularly hard stance on big mergers em- boldened by the Obama admin- istration. In 2015, the FTC challenged 27 deals and it has rejected a number of big mergers. Eight more were abandoned after the U.S. Department of Justice ob- jected to them, according to U.S. media reports. That included the US$5.5-bil- lion offer from Staples to buy Office Depot. Other notable mergers that were either scrapped or are being challenged by regulators include the US$28-billion merger of oil- field services firms Halliburton Co and Baker Hughes Inc., Su- perior Plus Corp.'s C$982-mil- lion deal for Canexus Corp. and two mergers involving health- care companies — Aetna's pro- posal to join with and Humana and Anthem and Cigna's deal. "There is currently a lot of preparedness to challenge cases in the U.S.," observes Melanie Aitken, managing principal of Bennett Jones (US) LLP, and a former commissioner of the Competition Bureau of Canada. "These things go in cycles." Nor does it look like it will let up in the U.S., where neither of the presidential candidates, Democrat Hillary Clinton or Re- publican Donald Trump, seem sympathetic to the bigger-is-bet- ter philosophy being espoused by mega-merger proponents. Brian Facey, chair of the com- petition, antitrust & foreign in- vestment group at Blake Cassels & Graydon LLP, agrees the "U.S. has taken a very aggressive en- forcement stance." Assaf says the challenge to mega mergers is "concentrated markets. You are seeing issues arising in terms of scale and size. People are looking at the future and potential for innovation. You have got a lot of angles at play." Facey says mega mergers in- volving competitors can be chal- lenging, particularly when Can- adian entities are involved. "We have got a pretty thin market. We don't have the density. It's hard to have a lot of competitors," he says. So when a merger is proposed that would take an industry from four to three major competitors or three to two, traversing the regulatory waters can be particu- larly challenging, Facey notes. It can also put competi- tion regimes at odds involving cross-border issues, especially since the Supreme Court of Can- ada breathed life in the s. 96 effi- ciencies defence in the Competi- tion Act. It happened in a small but mighty case, Tervita Corp. v. Canada, a $6-million domestic merger involving environmental waste sites in British Columbia. Section 96 permits mergers where it can be shown that ef- ficiencies gained from a merger outstrip the anticompetitive im- pact. It's a provision that lawyers say is unique to Canada. Interestingly, it was raised in the Superior Plus-Canexus mer- ger proposal, which involved two Canadian-headquartered com- panies with operations in the U.S. The FTC shot that merger down because it would lead to so- dium chlorate being concentrat- ed in the hands of two companies — the merged entity and another competitor. However, the Can- adian regulator released a note after the FTC decision saying it would have approved the merger under the efficiencies defence. The Bureau said in a statement that "the efficiency gains would be clearly greater than the likely significant anti-competitive ef- fects of the transaction." The parties later called off their merger. Facey, whose firm raised the s. 96 efficiencies exception in the Superior-Canexus merger at the Bureau, said Canadian legislators added the efficiencies defence specifically to take into consideration Canada's smaller marketplace. "There are not many indus- tries in Canada were there are more than five competitors. We are too thin to handle that much," he says. Contrast that defence to where the focus is at in the U.S. on mergers. Aitken says, "The U.S. agen- cies, and in particular, we see this in the cases brought by the FTC, have focused in several recent cases on looking through the lens of how a particular group of customers is affected . . . rather than a more general look at the parties' overall market power post merger." For example, in the Sta- ples-Office Depot merger, "The FTC was concerned about the impact on big national players [as] customers. It didn't accept that Amazon was enough of a player, at least not yet." Aitken believes the efficiencies defence will be a double-edged sword for Canadian business. "It's a pretty tall order and a real point of distinction between Canada and its major trading partners. Arguably, some of the most potentially harmful mer- gers would have the greatest sav- ings," she says. "The bureau has got to be concerned about facing an effi- ciencies defence," adds Aitken. "The ability to substantiate that an efficiencies claim by the parties is offset by the anti-com- petitive effects, which must now be quantified by the Bureau, is a significant burden." LT Brian Facey says mega mergers involving competitors can be challenging, particu- larly when Canadian entities are involved. FOCUS © 2016 Thomson Reuters Canada Limited 00238CY-84416-CE Drafting Assistant – Transactional also: • Flags discrepancies in defined terms, numbering, punctuation, and non- conforming phrases • Hyperlinks those flagged issues, allowing you to navigate to the exact location within your documents • Links key concepts such as cited sources and defined terms • Scans your document and quickly connects to other documents referenced in the transaction With Drafting Assistant – Transactional, you'll expedite the document review process and spend more time tackling the substantive, client-specific issues that matter most. 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