Commissioner Requires Remedies in Minority Interest Transaction
On November 1, 2004, the Competition Bureau (the “Bureau”) reached a Consent Agreement (the “Agreement”) from La Coop fédérée (“LCF”) and Groupe BMR (“BMR”) in connection with LCF’s acquisition of a minority interest in BMR. The Agreement requires that (i) certain franchisees in four local markets in the province of Quebec find new banner under which to operate; and (ii) that LCF and BMR continue supplying the stores on competitive terms until either a new franchisor is found or the end of 2014.
Based on its review of the transaction, the Bureau concluded that the merger would likely result in a substantial lessening or prevention of competition in the retail sale of hardware products and building materials in four cities in the province of Quebec.
While the Bureau has not issued a position statement, the Commissioner likely viewed the transaction as the acquisition by LCF of a “significant interest” in BMR. The Merger Enforcement Guidelines (the “MEGs”) define a “significant interest” as the “ability to materially influence the economic behaviour of the target business, including but not limited to decisions relating to pricing, purchasing, distribution, marketing, investment, financing and the licensing of intellectual property rights”.
What makes this case interesting is that the Commissioner required remedies in connection with the acquisition of a minority interest, as opposed to an acquisition of control. This is consistent with a trend towards increased merger enforcement and sends a clear message to merging firms that the Bureau will seek remedies or challenge transactions below the pre-merger notification thresholds, as well as minority interest transactions where it believes they raise substantive concerns. Accordingly, firms contemplating transactions that fall into either of these categories should engage in some preliminary competitive effects analysis, as it can no longer be assumed that these types of transactions are below the Bureau’s radar.
LCF is the largest agri-food company in Quebec and is owned by over 100,000 members grouped in 102 cooperatives located in several Canadian provinces. Most relevant to this transaction, LCF runs the Unimat, a network of 175 hardware stores that operate throughout Quebec, New Brunswick, and Eastern Ontario. BMR is a group of independent dealers that operate 187 hardware centres in Quebec, Ontario and the Atlantic Provinces as well as on the French islands of Saint Pierre & Miquelon.