Authors: Jeremy Fraiberg and Alex Gorka

Competition law and foreign investment review

Competition Act

Canada’s Competition Act (CA) provides a procedure for the review of transactions that involve the acquisition of a business in Canada.

Pre-merger notification

Subject to certain exceptions, the CA requires pre-merger notification of transactions which meet the following two thresholds:

• Party-size: All parties and their affiliates have assets in Canada the aggregate gross book value of which exceeds $400 million, or aggregate gross revenues from sales in, from or into Canada that exceed $400 million.
• Transaction-size: The aggregate book value of the assets in Canada being acquired, or the gross revenues from sales in, from or into Canada generated from all of the assets being acquired, exceeds $93 million (2024 threshold, revised annually).

If the transaction is an acquisition of shares, an additional threshold requires that the voting interest of the purchaser post-transaction exceed 20% for a public company (or 50% if the 20% threshold is already exceeded). Accordingly, a purchaser is required to file a pre-merger notification with the Competition Bureau if it would acquire more than 20% of the voting shares of a publicly traded company and the financial thresholds noted above would be crossed.

Where a notification is required, the parties must provide certain information to the Competition Bureau, including transaction details, affiliate information, product descriptions, customer and supplier lists, and certain pre-existing documents that assess the competitive impact of the transaction. The transaction cannot close until the expiry of a 30-day statutory waiting period. If, prior to expiry of the waiting period, the Commissioner of Competition issues a supplementary information request (SIR), the waiting period is extended for an additional period ending 30 days following full compliance with the SIR. A transaction may be completed following expiry of the applicable waiting period, unless the Commissioner has sought and obtained an injunction preventing closing.

In the case of a hostile transaction, the waiting period commences once the offeror has submitted its portion of the notification. After the Commissioner advises the target company of the offeror’s notification, the target company then has 10 days to file its portion of the notification.

Where there is minimal or no competitive overlap, the parties may request that the Commissioner issue an advance ruling certificate (ARC), or in the alternative, a no action letter, which usually can be obtained within 14–21 days of filing. Where an ARC is issued, the Commissioner cannot challenge the transaction and the transaction is exempt from the pre-merger notification requirement. Where a no action letter is issued, the Commissioner states that he does not intend to challenge the transaction (but retains the right to do so), and the transaction is exempt from the pre-merger notification requirement through the issuance of a waiver.

Other than where an ARC is issued, the Commissioner has the right to review and challenge a transaction until one year after closing. If a transaction is not subject to mandatory notification and is not voluntarily notified by way of filing an ARC request, the Commissioner has the ability to challenge the transaction for three years following closing.

Standard of review

The substantive test is whether the transaction is likely to prevent or lessen competition substantially (SLPC) in a market in Canada. When conducting this analysis, the Competition Bureau will consider a number of factors including the appropriate product and geographic markets, market share and concentration, effectiveness of remaining competition in the market, prospects for entry of new competitors, barriers to entry, whether the target company is a failing firm, the role of regulation or innovation in the relevant market, the countervailing power of purchasers, network effects, entrenchment of incumbents, non-price effects (e.g., quality, choice or consumer privacy), and coordination between competitors.

Where a transaction is likely to result in an SLPC, the Commissioner may seek from the Competition Tribunal (the Tribunal) an order to remedy the concern (or, alternatively, the Commissioner and the merging parties may enter into a consent agreement that, once registered with the Tribunal, has the force of a Tribunal order). The CA provides for a rebuttable presumption of competitive harm based on post-merger market share and concentration levels. Specifically, a transaction is presumed likely to result in an SLPC if, in any relevant market, as a result of the transaction, both

1. the concentration index (measured as the sum of the squares of the market shares of the suppliers or customers) increases or is likely to increase by more than 100
2. either the concentration index is or is likely to be more than 1800 or the market share of the merging parties is or is likely to be more than 30%

To rebut the structural presumption, merging parties must demonstrate that an SLPC is not likely to occur. Such evidence may include, for example, the likelihood of entry or expansion by other market participants; ongoing innovation efforts and change within a dynamic market; customers’ countervailing power; and whether the target was likely to fail absent the merger, to name a few factors.

The CA process will likely only impact the timing and closing of a transaction where the business activities of the purchaser, its affiliates or entities in which it has a significant interest compete with those of the target company in Canada, or the purchaser has some significant “vertical” relationship (such as that of being a major supplier or customer) with the target.

Investment Canada Act – net benefit review

Outside of the national security context, the Investment Canada Act (ICA) generally applies when a non-Canadian investor proposes to acquire control of a Canadian business (as defined in the ICA) directly or indirectly or to establish a new Canadian business.

Acquisition of control

Generally, an acquisition of control occurs where the investor acquires one-third or more of the voting shares of a corporation (subject to a rebuttable presumption that the corporation will not be controlled in fact by the investor). The acquisition of less than one-third of the voting shares of a corporation is deemed not to constitute an acquisition of control. The acquisition of a majority of the voting shares of a corporation is deemed to constitute an acquisition of control. Where the Canadian business is engaged in a cultural business, or the investor is a state-owned enterprise (SOE), the applicable Minister has the discretion to make a determination that an acquisition of control has occurred regardless of these rules and presumptions.

Application for review and notification

Direct acquisitions of control of Canadian businesses exceeding certain monetary thresholds are subject to net benefit review in advance of closing by the Minister of Innovation, Science and Industry (or the Minister of Canadian Heritage where the Canadian business is engaged in a cultural business), while all other acquisitions of control are subject only to notification. There are six different thresholds for pre-closing net benefit review that apply to the direct acquisition of control of a Canadian business by a non-Canadian:

• Direct acquisition of a publicly traded entity: $1.386 billion or more* in enterprise value, based on the target’s market capitalization, plus total liabilities (less operating liabilities), minus cash and cash equivalents.
• Direct acquisition of a privately held entity: $1.386 billion or more* in enterprise value, based on the total acquisition value, plus total liabilities (less operating liabilities), minus cash and cash equivalents. Where acquiring less than 100%, total acquisition value will include amounts in addition to those payable by the non-Canadian acquiring control.
• Acquisition of substantially all of the assets of a Canadian business: $1.386 billion or more* in enterprise value, based on the total consideration payable, plus the liabilities that are assumed by the investor (other than operating liabilities), minus the cash and cash equivalents that are transferred to the investor.
• Direct acquisition of a cultural business: book value of assets of a Canadian business is $5 million or more.
• Direct acquisition by a non-WTO investor of a non-WTO-controlled target: book value of assets of a Canadian business is $5 million or more.
• Direct acquisition by a SOE: book value of assets of a Canadian business is $551 million (2025 threshold, revised annually).

* For non-state-owned investors from the European Union, the United States, the United Kingdom, Mexico, Australia, Brunei, Chile, Colombia, Honduras, Japan, Malaysia, New Zealand, Panama, Peru, Ukraine, Singapore, South Korea or Vietnam, the enterprise value threshold increases to $2.079 billion or more.

The enterprise value threshold is subject to annual adjustment based on a GDP-derived indexing formula. Direct acquisitions of Canadian businesses below the thresholds, and indirect WTO investments, including by SOEs, are subject to notification only, but may still be reviewed on national security grounds. An indirect investment (an acquisition of a foreign company with a Canadian subsidiary) is not reviewable unless it is an indirect non-WTO investment or the Canadian business is a cultural business, in which case the threshold is $50 million in book value of assets or more (or $5 million where the value of worldwide assets of the Canadian business exceeds 50% of the value of all assets acquired). In such cases, the review occurs after closing.

Where an acquisition is subject to pre-closing review, the parties cannot close the transaction until the reviewing Minister grants approval. The application for review includes transaction details, information on the investor and the Canadian business, and the investor’s plans for the Canadian business. The investor is usually required to submit written, binding undertakings that will generally remain in force for five years, in order to confirm its commitment to perform key components of its plans.

The reviewing Minister has up to 45 days to determine whether the investment should be approved (which may be unilaterally extended by the Minister for an additional 30 days). The review period may be extended further as agreed upon by the Minister and the investor.

Where an acquisition of control does not trigger the applicable net benefit review threshold, only a notification is required. The notification can be filed anytime pre-closing or no later than 30 days after closing. The notification requires limited information relative to a pre-closing application for review.

Standard of review

The standard of review is whether the investment is likely to be of “net benefit to Canada.” The reviewing Minister will consider the following statutory factors: effect of the investment on economic activity in Canada; participation of Canadians in the Canadian business; effect of the investment on productivity, technological development and products in Canada (including the effect on any rights relating to intellectual property, whose development has been funded in whole or in part by the Canadian government); effect of the investment on competition in Canada; compatibility of the investment with national industrial, economic and cultural policies (including the effect of the investment on the use and protection of personal information about Canadians); and contribution of the investment to Canada’s ability to compete globally. Where the investor is a SOE, the reviewing Minister will also consider the nature and extent of control by a foreign government; the SOE’s corporate governance, operating and reporting practices; and whether the acquired Canadian business will retain the ability to operate on a commercial basis.

Investment Canada Act – national security review

The ICA provides for the review of any investment where it could be “injurious to national security” (regardless of whether the investment exceeds the identified monetary thresholds or whether an acquisition of control occurs). While “national security” is not defined in the ICA, the Guidelines on the National Security Review of Investments state that, in assessing the national security implications of an investment, the nature of the assets or business activities and the parties involved, including the ultimate controller and potential for third-party influence, are considered. The Guidelines also indicate that the government will subject all investment by SOEs or private investors assessed as being closely tied to — or subject to direction from — foreign governments to enhanced scrutiny, and set out a non-exhaustive list of factors that may be taken into account when assessing national security.

For an investment where a pre-closing net benefit review is required, the filing of the application for review triggers the initial 45-day period under the national security review provisions. Where only a notification is required, the filing of the notification triggers the initial 45-day period. If, within that 45-day period, an investor does not receive notice from the Minister that a national security review may be ordered or has been ordered, the investor can be certain that an extended national security review will not be undertaken.

Investors are able to voluntarily notify investments that do not trigger a mandatory notification or application for review. By filing a voluntary notification, an investor triggers the initial 45-day review period. Where an investor elects not to voluntarily notify an investment, the federal government has five years after the date of implementation to commence a national security review.

A full national security review can take upwards of 200 days. If the reviewing Minister is of the opinion that the investment may be “injurious to national security,” they can accept undertakings to address the national security concern or refer the investment to the Governor in Council (Cabinet). Cabinet may take any measures it considers advisable to protect national security, including directing the investor not to implement the investment (or divest if the investment has been implemented) or permitting the investment subject to certain conditions.

Forthcoming establishment of mandatory pre-closing notification regime

Amendments to the ICA, passed in December 2023 but not yet in force, create a mandatory pre-closing national security notification regime for non-Canadians proposing to directly or indirectly acquire, in whole or in part, an entity that has operations in Canada, employees/contractors in Canada or assets in Canada used in carrying on the entity’s operations. The notification obligation will exist where the entity carries on a prescribed business activity, the non-Canadian could access or direct the use of material non-public technical information or material assets, and the non-Canadian would gain the power to appoint or nominate persons such as directors or senior officers of the entity, or certain other prescribed special rights. Business activities relating to critical minerals, vaccines, semiconductors, quantum computing, cybersecurity, artificial intelligence, information technologies and personal data collection are all areas likely to be captured by the new regime. The regime will come into effect once the prescribing regulations are in force.

When the regime is in effect, there will be expanded penalties for non-compliance of $25,000 per day per infraction and a new discretionary penalty of $500,000 for non-compliance with the mandatory pre-closing filing requirement.

---