Canada: Merger laws too permissive, says non-partisan group
Since the Competition Act came into force in 1986, authorities have challenged only 18 transactions.
Canadian laws underestimate the harm to competition caused by corporate mergers while overstating the benefits of such mergers, according to a new study from the Center for International Governance Innovation (CIGI).
According to the report's author, Keldon Bester, legal loopholes have not been able to prevent very large companies from making the very type of acquisition that kills competition and maintains their dominance.
Mr. Bester adds that Canada lags behind other countries like the United States in modernizing these laws.
He compares existing Canadian laws to defective brakes.
“Our laws are like the brakes of a car going down a hill. We know we're going down it, but we'd like to go down it slower.
—Keldon Bester, report author
Mr. Bester laments Canada's inaction. The permissiveness of the laws is worrying in a context where the digital economy is growing, which brings its own challenges to overcome.
Corporate mergers must be approved by Canada's Competition Bureau, which judges whether or not a transaction may harm competition.
Since entry competition law came into effect in 1986, authorities challenged only 18 mergers. Bester finds it even more alarming that the Bureau has never won in court.
An Ipsos poll last January suggested Canadians were worried of the situation.
Thus, 88% of respondents wanted more competition, because big companies too easily take advantage of Canadians. A similar proportion of respondents believed that greater competition leads to better choices and lower prices for consumers.
The survey was conducted online from January 14-17, 2022 among 1,001 Canadians aged 18 and older. The accuracy of Ipsos non-probability polls is measured by a credibility interval. The credibility interval for this survey is 3.5 percentage points, 19 out of 20 cases.
The CIGI report highlights that the value of a transaction is not one of the criteria that must compel companies to inform the Commissioner of Competition.
A majority of Canadians (88%) want more competition because big companies take advantage of consumers too easily, according to an Ipsos poll.
In the United States, a merger must be reported to the Federal Trade Commission if the value of the transaction exceeds a certain threshold. Earlier this year, the Commission and the Department of Justice announced an investigation aimed at modernizing merger guidelines to better detect and prevent anti-competitive transactions.
Au Canada, the bar is high for the Competition Bureau to intervene, says Bester, who adds that the law requires authorities to consider the efficiencies that would result from a merger. These must outperform and neutralize the effects of any diminished competition.
The author believes that there is also a bias against the idea of blocking a merger.
Thus, the law favors negotiations intended to include concessions or solutions to competition problems. These remedies will not completely correct the problems associated with lessening competition resulting from a merger, the report reads.
In his report, Mr. Bester proposes changes to Canadian laws.
Among other things, he recommends expanding the range of transactions that the Competition Bureau can examine, increasing the period during which it can block an acquisition and modifying the criteria for blocking. a merger.
Telecommunications giant Rogers' attempt to swallow rival Shaw, a $26 billion deal, is arguably the merger largest in the country today.
The transaction between Rogers and Shaw is probably the largest in the country right now.
According to Mr. Bester, if Canadian laws were stricter, the transaction between Rogers and Shaw would have been nipped in the bud due to the lack of competition in the telecommunications sector in the country.
“If our laws were stronger, this transaction wouldn't even have been offered.
— Report author Keldon Bester
The Competition Bureau is trying to prevent this transaction in order to protect Canadians from higher prices, from reduced quality of service and against a loss of choice, particularly with regard to wireless services.
Rogers and Shaw are expected to appear before the Competition Tribunal in November to defend this transaction.
The most recent amendments to the Competition Act date back to June. The government then increased fines and maximum penalties for those who break the law, banned wage-fixing and no-poaching agreements between employers, and clarified that incomplete price disclosure – partial price disclosure – is a deceptive business practice.