The press release is here. Read on to find out why you should care.
The Canadian merger law is a bit different to ours. It not only makes unlawful mergers that substantially lessen competition (like our Act), but also mergers that would lead to a substantial prevention of competition. Having no idea what this meant I looked at the Bureau’s merger guidelines. Apparently a merger is unlawful if it will hinder the development of future competition (para2.10). The guidelines give examples at paragraph 2.12:
The following are examples of mergers that may result in a substantial prevention of
• the acquisition of a potential entrant or of a recent entrant that was likely to
expand or become a more vigorous competitor;
• an acquisition by the market leader that pre-empts a likely acquisition of the
same target by a competitor;
• the acquisition of an existing business that would likely have entered the market
in the absence of the merger; …
Now, all of these situations are captured in our law under the substantial lessening of competition test. However, the explicit statement of ‘prevention’ raises three points:
- The law makes explicit the practice of counterfactual analysis (i.e. crystal ball gazing) that is used in Australia. This is good because it allows more realistic analysis of mergers. The alternative is to assume the future will just look like the past. But, post-Metcash, our counterfactual analysis is a mess, so it will be interesting to see how the Canadian authorities have dealt with it.
- Would our law be better if the ‘prevention’ analysis that underpinned the Metcash case (or stopped the Warehouse merger in New Zealand) was explicitly stated in our Act like in the Canadian Act? Or is this an open invitation to competition authorities to try to ‘design’ markets?
- Why stop at the potential expansion or entry of the target? What about the acquirer? Suppose that company A buys company B but in the absence of the merger company A would have grown organically and increased its market share through a vicious price war with B. The merger does not prevent company B from competing but it does provide an alternative to company A growing its market share by competing. So should this be illegal? Surely muting the acquirer’s competitive behaviour is just as important as muting the target’s competitive behaviour? But the Canadian guidelines do not mention this possibility. Why not?
The judgement is not yet up on the Canadian Competition Tribunal’s site. But it should be interesting to read how far the Canadians have pushed the boundary on merger analysis.