Canada’s merger laws let companies ‘extinguish competitive threats,’ new report says

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A new report says that lax merger laws in Canada overestimate the disadvantages of mergers to competition and undermine their benefits.

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According to the Center for International Governance Innovation, gaps in Canada’s merger laws have failed to prevent the kind of acquisitions that allow large firms to “extinguish competitive threats and consolidate their dominance.”

Keldon Bester, a fellow at the center and author of the report, said Canada has “fallen behind” other jurisdictions such as the United States.

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He compared Canada’s current regime to a set of faulty brakes. “Today our laws are like the brakes on a car going downhill. We know we are going downhill, but we want to go a little slower there,” he said in an interview.

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Their report says that merger laws are “allowed” especially in the context of the growing digital economy, which is fraught with unique challenges.

Mergers, which are transactions that see two companies merging into one, may be subject to review by Canada’s competition watchdog to determine whether they would be detrimental to competition.

However, since the introduction of the Competition Act in 1986, the Competition Bureau has challenged only 18 mergers. And what is particularly worrying, the report says, that the bureau has never won a challenge to the final decision.

A recent survey shows that Canadians are concerned about the state of affairs.

According to an Ipsos survey conducted in January, 88 percent of respondents agreed that more business competition is needed “because it’s much easier for big businesses to take advantage of Canadians.”

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The same proportion agreed that greater competition among businesses could lead to more choices and lower prices for consumers.

The survey of 1,001 Canadians aged 18 and older was conducted between January 14 and 17. Ipsos says its online results are weighted and compared with a traditional survey, which has an error of up to 19 times out of 20, or minus 3.5 percentage points. ,

One of the issues with the Competition Bureau is the extent to which it must be notified of the transaction, says the CIGI report.

Under the Competition Act, parties to a proposed merger must notify the Competition Bureau if a transaction meets certain financial limits. But those thresholds do not include the value of the transaction itself, the report said.

This is in contrast to the US, where the Federal Trade Commission has already 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 inquiry to modernize merger guidelines to “better detect and prevent anti-competitive deals.”

By comparison, Canada is “the way behind,” Bester said.

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Another problem with the Competition Bureau is that “the bar is high enough to intervene in a merger,” said Bester, a researcher who studies competition and monopoly powers in Canada.

This is because the existing laws take into account the increased efficiency that comes from mergers, he said. Losses from less competition are allowed if the proposed merger will result in cost savings that are considered high.

There is also a bias against blocking the merger altogether, he added.

Instead, the laws favor agreements that include concessions or measures that would address some of the competition’s concerns. These measures are not intended to fully address the lack of competition caused by the merger, the report said.

The report suggests a number of changes to Canada’s merger laws.

The recommendations include expanding the limit of transactions about which the Competition Bureau has been notified, expanding the time window to block a harmful merger and changing the criteria used to assess whether Should the transaction be blocked.

The most high-profile proposed merger in Canada right now is arguably Rogers’ proposed acquisition of Shaw, with a potential transaction value of $26 billion.

Bester said that if Canada had stronger merger laws, the Rogers-Shaw deal would automatically be “dead in the water” given the lack of competition in the telecommunications industry.

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“If we had stronger merger laws, this merger would not have been proposed in the first place.”

However, Canada’s competition watchdog is trying to block the deal, arguing it would significantly reduce competition and lead to higher phone bills.

Rogers and Shaw are expected to appear before the competition tribunal in November, where they will argue in favor of the transaction.

Although federal liberals have recently amended other parts of the Competition Act, Canada has not touched on merger laws—a problem that Bester places the blame on the “legal and financial mechanisms” that benefit from their permission.

Banks, law firms and private equity groups are “interested in very loose merger laws because it increases their bottom line,” Bester said.

“We haven’t really done anything in favor of a merger today, so Canada is really behind the ball.”


Source: globalnews.ca

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