New thresholds in effect for Canadian merger reviews

New thresholds for Canadian merger reviews under the Competition Act and Investment Canada Act came into effect on February 2. The 2019 increases remain in keeping with increases made in recent years.

What You Need To Know

• The size-of-transaction threshold for merger notification under the Competition Act has increased from $92 million to $96 million for 2019.
• Similarly, the 2019 thresholds for reviews of direct investments in Canadian businesses by foreign investors under the Investment Canada Act have increased from:
  • $1.5 billion to $1.568 billion in enterprise value of the Canadian business for trade agreement investors, which includes investors from the U.S., EU and Japan, among others;
  • $1 billion to $1.045 billion in enterprise value of the Canadian business for other investors from countries that are members of the World Trade Organization (WTO); and
  • $398 million to $416 million in asset value of the Canadian business for state-owned or influenced enterprises.
• Companies should consider strategy when involved in transactions that will exceed these thresholds. Under the Competition Act, notifiable transactions will require pre-closing approval, and reviews involving transactions between competitors can be long and complex. Where Investment Canada Act approval is required, parties should consider developing a legal, commercial and political due diligence plan, and the potential need for government and public relations strategies.

The Details

Competition Act thresholds

Pre-merger notification under Canada’s Competition Act is generally required for transactions where the target has assets in Canada or revenues in or from Canada generated from those assets of $96 million or more and where the parties to the transaction have assets in Canada or revenues from sales in, from or into Canada of $400 million or more. In some cases, additional share or partnership interest ownership levels must also be satisfied.

Investment Canada Act thresholds

The Investment Canada Act generally requires a non-Canadian investor proposing to acquire direct control of a Canadian business receive approval that the investment is of “net benefit” if enterprise value of the Canadian business exceeds at least $1.045 billion or $1.568 billion in the case of “trade agreement investors.” A lower threshold of $416 million, based on the book value assets of the Canadian business, applies to acquisitions by state-owned or influenced enterprises. Lower thresholds of $5 million (for direct acquisitions) and $50 million (for indirect acquisitions) apply in connection with the acquisition of Canadian “cultural businesses,” which includes businesses involved in the production or distribution of books, music, film and other media such as video games.

Omar and other Torys lawyers have authored a piece that discusses transacting with state-owned or influenced enterprises. You can read “Chinese investment into Canada: balancing openness and security” in the Q1 2019 edition of the Torys Quarterly.