Canada’s Competition Bureau released its precedent ‘Consent Agreement Outline’ for merger remedies on 1 May 2007, which forms an appendix to the previously released ‘Information Bulletin on Merger Remedies in Canada’.
As noted by the bureau in its accompanying statement, the ‘Consent Agreement Outline’ is a generic model on which to base future consent agreements in merger cases. Each such agreement will be tailored to the specific facts and circumstances of the case.
Many of the areas the outline covers have been dealt with, in some manner, in prior cases. As a starting point for future negotiations, however, it contains provisions that are probably more than most parties could reasonably be expected to agree with.
For example, it generally gives the last word on several potentially contentious issues to the Commissioner of Competition. So, the Commissioner would have decision-making powers on important issues such as: the appointment of the hold separate manager and the hold separate monitor; the approval of the sale process and determination of whether a prospective buyer can participate therein; the consideration and approval of the terms of divestiture; and the extension of the trustee sale period.
It is not clear whether the limited provision in the ‘Consent Agreement Outline’ allowing for applications to the Competition Tribunal regarding “interpretation, application or implementation” of the agreement would be sufficient to allow for the tribunal to adjudicate such issues if the divesting party objected to the Commissioner’s decisions.
The hold separate manager would have some unusually strong powers including: with the concurrence of the hold separate monitor (also independent of the parties to the transaction), being able to decide on the amount of financial contribution from the acquiring firm to the business to be divested and to set the terms of employee retention plans; and engaging in new businesses if the agreement of the Commissioner and the hold separate monitor was forthcoming (ie the firm selling the business being divested would not be able to veto expansions into new businesses).
One area that may provoke significant debate is the terms of a sale agreement. The ‘Consent Agreement Outline’ would oblige the divesting company to “provide reasonable and ordinary commercial representations and warranties” to the buyer of the business being divested and to “protect pension benefits”.
In any normal arms-length transaction, these issues can reasonably be the subject of considerable negotiation, yet the outline contains only a limited mechanism for protection of the rights of the divesting party.
The outline would provide a divestiture trustee (who would be appointed by the Commissioner) with the “sole authority to determine, and the power to impose, the reasonable and ordinary commercial representations and warranties for the purpose of effecting the divestiture”.
The rights of the selling party to challenge the terms of sale would be limited to allegations of malfeasance, gross negligence or bad faith on the part of the divestiture trustee.
It is helpful that the bureau has issued more detailed guidance on what it hopes to see in a ‘Consent Agreement’. The ‘Consent Agreement Outline’ can be seen as the bureau’s starting point in remedy negotiations in merger cases. It remains to be seen whether all such terms will become standard form.
Shawn Neylan is a partner at Stikeman Elliott