Guidelines for Mergers and Acquisitions involving Transportation Undertakings

June 2008 Draft

INTRODUCTION

The purpose of these Guidelines is to inform parties to a proposed transaction involving a transportation undertaking subject to the application of sections 53.1 to 53.6 of the Canada Transportation Act of: (i) the factors that may be considered to determine whether a transaction raises issues with respect to the public interest as it relates to national transportation, (ii) the information, including information with respect to the public interest, that should be included in any notice provided to the Minister of Transport, and (iii) the process pertaining to a notice filed under section 53.1 of the Act .

REVIEW OF MERGERS AND ACQUISITIONS INVOLVING TRANSPORTATION UNDERTAKINGS

The Canada Transportation Act contains provisions for the review of merger and acquisition transactions involving federal transportation undertakings to determine whether they raise issues of public interest. In the first phase of any review, the Minister of Transport assesses the transaction to determine whether it raises any public interest issues. If the Minister finds that no public interest issues are raised, the Minister shall issue a notice to that effect and the transaction may be completed without any further review under the Act. If, however, the Minister determines that the proposed transaction raises public interest issues, the Minister may direct the Canadian Transportation Agency or appoint and direct any other person to examine those issues. Where the Minister is of the opinion that a transaction raises public interest issues as it relates to national transportation, the transaction cannot be completed unless the Governor in Council approves it. A detailed description of the review process can be found in Appendix A.

PUBLIC INTEREST AS IT RELATES TO NATIONAL TRANSPORTATION

The Canada Transportation Act requires that the Minister of Transport assess whether a proposed transaction involving a federal transportation undertaking raises issues with respect to the public interest as it relates to national transportation. The public interest is a broad concept. Individual transactions may raise different public interest issues or concerns. The nature and type of public interest issues which may exist in respect of any particular transaction depend on the unique facts and context of the transaction.

However, it is possible to provide general guidance to parties to transactions involving federal transportation undertakings on the factors that may be considered in determining whether the transaction raises public interest issues as it relates to national transportation.

National Transportation Policy

A discussion of public interest factors begins with consideration of the National Transportation Policy.

The National Transportation Policy1 recognizes that competition and market forces are the prime agents to provide viable and effective transportation services. It also provides that regulation and strategic public intervention are used to achieve economic, safety, security, environmental or social outcomes that cannot always be achieved satisfactorily by competition. It provides that the ideal system is most likely to be achieved when, among other things, rates and conditions do not constitute an undue obstacle to the movement of traffic within Canada or to the export of goods from Canada and the transportation system is accessible without undue obstacle to the mobility of persons, including persons with disabilities.

These objectives assist in circumscribing the types of public interest considerations which could be relevant to a transaction review.

PUBLIC INTEREST FACTORS

In assessing whether a transaction involving a transportation undertaking raises issues or concerns with respect to the public interest as it relates to national transportation, the following factors could be considered:

ECONOMIC

A. IMPACTS ON USERS OF THE TRANSPORTATION SYSTEM

Of prime interest in any transaction involving a transportation undertaking will be the impacts on prices and the levels of and access to services and facilities. In fully competitive markets these issues will be of lesser concern. In markets characterized by less competition, such impacts may take on a higher level of significance. Transactions which have the potential to improve competition, efficiency, networks or market structure and/or add capacity or investment will be less likely to raise a public interest concern compared to those which do not or which have an adverse impact on these factors. Transitional impacts experienced by users may be a relevant public interest factor, as may be the likelihood that the benefits of the transaction could be achieved by other, less disruptive means.

B. IMPACTS ON COMMUNITIES

The impact of a transaction on the development, viability and location of a non-transportation industry (such as the tourism industry) may be a public interest factor in some cases. Impacts on labour and employment in a community or region may raise public interest concerns. Availability of affordable service in low-density markets may also be a public interest factor.

C. IMPACTS ON OTHER TRANSPORTATION UNDERTAKINGS

Impacts on intermodal connections and supply to other transportation undertakings such as freight consolidators might be a public interest factor in a transaction. Anticipated reactions of competitors to a transaction, or whether a transaction may adversely affect one or more transportation sectors, might also be a factor.

D. IMPACTS ON CANADA

Impacts of a transaction on Canadian competitiveness in terms of leadership, management and workforce expertise may be relevant to a public interest determination. Harmonization and productivity improvements may represent positive public interest factors. Impacts on trade, gateways and corridors will be considered. Innovation, technology and R&D impacts may also be reviewed. Impacts on taxation and government expenditure may also be factors.

E. IMPACTS ON THE UNDERTAKING(S) INVOLVED

The financial viability of the entity resulting from the merger or acquisition may be a relevant public interest factor as may be the impact of the transaction on costs and revenues of the undertaking(s) involved.

ENVIRONMENTAL

The capacity of a transaction to improve the quality of life and the environment by reducing congestion and pollution will be a positive public interest factor.

SAFETY

Safety impacts of a transaction will be carefully considered where relevant. Potential of transactions to improve safety in the workplace and in our communities will be an important consideration.

SECURITY

Transactions should not have an adverse impact on our capacity to protect our citizens and to respond to any threat. Where change of control of a key undertaking is proposed, reliability of the new owners could be a relevant public interest factor.

SOCIAL

Where appropriate, impacts of transactions on low income workers and families may be reviewed. Wherever possible, transactions should improve wherever possible access to transportation for people with disabilities. Since modern governance in both the public and private sectors demand appropriate levels of accountability and transparency, impacts in these areas may affect the public interest. Cultural impacts and those affecting Canadian sovereignty may also be public interest factors.

NOTICE UNDER THE CANADA TRANSPORTATION ACT OF A PROPOSED TRANSACTION INVOLVING A TRANSPORTATION UNDERTAKING

TRANSACTIONS SUBJECT TO REVIEW

Under the Canada Transportation Act, parties to a proposed transaction must give notice to the Minister if the following conditions are met:

  1. The party is required to notify the Commissioner of Competition under subsection 114(1) of the Competition Act and,
  2. The proposed transaction involves a federal transportation undertaking.

A notice should also be submitted to the Canadian Transportation Agency if the transaction involves an air transportation undertaking so that the Agency can assess whether the transaction would result in an air transportation undertaking that is Canadian as defined in section 55(1) of the Canada Transportation Act.

While certain transactions will clearly meet the above-mentioned conditions, it is acknowledged that questions may arise as to whether particular transactions are subject to section 53.1 of the Act. Any questions regarding the application of section 53.1 of the Canada Transportation Act may be referred to Transport Canada, either in advance of or as part of a notice filed with the Minister. (Contacts provided below.)

NOTICE CONTENTS

Notice of a proposed transaction involving a federal transportation undertaking should include the following information:

  • The information that is required to be provided to the Commissioner of Competition under the Competition Act2 or that is filed with the Commissioner of Competition; and
  • A Public Interest Impact Assessment containing information with respect to the public interest as it relates to national transportation. (See below.)

TIMING OF NOTICE TO THE MINISTER

As the process under the Canada Transportation Act contemplates a concurrent review of the public interest by the Minister and of competition by the Commissioner of Competition, parties to a proposed transaction are required to provide notice of a proposed transaction involving a transportation undertaking to the Minister at the same time parties either file a request for an advance ruling certificate or make a short or long form filing with the Commissioner of Competition.

FEES

No fees are charged by Transport Canada to process notification of a proposed transaction.

CONTENTS OF A PUBLIC INTEREST IMPACT ASSESSMENT

Parties are provided with broad discretion to determine what information to provide to address the potential public interest impacts. However, a substantial and complete notice will allow a more focused and expeditious review. This will result in fewer requests for additional information and, if warranted, fewer and more focused third party contacts. The benefit to parties will be a quicker review since Transport Canada will have the opportunity to conduct a thorough examination of the public interest issues raised by a transaction.

A Public Interest Impact Assessment of a proposed transaction should contain:

  • a narrative description of the proposed transaction including the objectives of the transaction;
  • a description of the transportation undertaking(s) involved in the transaction and the objectives of the transaction with respect to the transportation undertaking(s);
  • a description of proposed changes to the business or strategic plans, if any, in respect of any transportation undertakings involved in the transaction;
  • the parties' assessment of relevant public interest impacts related to the public interest factors set out above and any information with respect to these impacts;
  • a description of any proposed mitigation or remediation of adverse public interest impacts;
  • identification of major stakeholders who may be interested in the transaction (shippers, passengers, customers, suppliers, other levels of government, the general public, etc.) ;
  • a description of any consultation which has taken place with affected stakeholders prior to notification;
  • identification of any other government approvals required to complete the transaction including foreign approvals, actions taken to seek such approvals, and status of such actions;
  • supporting evidence, if any, for the statements made in the Public Interest Impact Assessment;
  • any other submission a party may wish to make as to whether the transaction raises issues with respect to the public interest as it relates to national transportation.

TRANSACTION REVIEW

SUBMISSION OF NOTICE

Persons submitting notices shall do so in writing to:

Minister of Transport
Place de Ville, 330 Sparks Street
Ottawa, Ontario, Canada
K1A 0N5

As well parties shall submit a copy of the notice to:

Assistant Deputy Minister, Policy
Transport Canada
Place de Ville, 330 Sparks Street
Ottawa, Ontario, Canada
K1A 0N5

In the case of a proposed transaction that involves an air transportation undertaking, the parties shall also submit a copy of the notice to:

Secretary
Canadian Transportation Agency
Jules Léger - Room 1952D
15 Eddy Street
Gatineau, Québec, Canada
K1A 0N9

Under the Canada Transportation Act, if the Minister is of the opinion that a transaction does not raise public interest issues, the Minister must provide a notice of that opinion within 42 days. Formal consideration of a notice by the Minister will only commence upon receipt of a complete notice that includes all the information required under the present guidelines.

REVIEW OF NOTICE

Following receipt of a notice, Transport Canada will perform a preliminary assessment of the information received for completeness. If required, the Minister may require a person who has given notice to provide further information.

An assessment will also be made regarding whether the transaction involves a federal transportation undertaking. In cases of doubt the Minister may require additional information from parties to the transaction to resolve the question.

CONFIDENTIALITY

All information submitted to the Minister will be treated as confidential consistent with section 51 of the Canada Transportation Act.

CONSULTATION

The Minister may seek the views of stakeholders (shippers, passengers, customers, suppliers, other levels of government, the general public, etc.). When doing so the Minister will refrain from disclosing confidential information. In some cases, however, the Minister may seek consent from parties to communicate relevant confidential information in order to facilitate the consultation.

REQUESTS FOR ADDITIONAL INFORMATION

The Minister may request at any time additional information from the parties to assist in determining whether the transaction raises any public interest issues. Additional information may also be required if the Minister determines the transaction raises pubic interest issues and appoints someone to conduct a formal review of the transaction.

ASSESSMENT & DETERMINATION

A proposed transaction will be assessed to determine whether it raises issues with respect to the public interest. Where the transaction raises no public interest issues the Minister shall give notice to that effect within 42 days after a person gives notice of the transaction. It is possible that for simpler transactions clearly raising no public interest issues that a determination will be made more quickly. Where the transaction raises public interest issues, the Minister may direct an examination of the issues by either the Canadian Transportation Agency or a person appointed under the Department of Transport Act.

PRE-NOTICE QUESTIONS

Any questions respecting the review process under the Canada Transportation Act, including whether a proposed transaction is subject to the Act or raises public interest issues relating to national transportation may informally be discussed with Transport Canada officials in advance of any official notice and without prejudice to any final determination by the Minister.

ADDITIONAL QUESTIONS

Questions regarding these Guidelines should be submitted to:

Mr. John Dobson
Senior Policy Advisor
Transport Canada, Surface Transportation Policy
Place de Ville, 330 Sparks Street
Ottawa, Ontario, Canada
K1A 0N5
Telephone: (613) 998-2992
E-mail: dobsonj@tc.gc.ca

Or

Mr. Alain Langlois
Legal Counsel
Transport Canada, Surface Transportation Policy
Place de Ville, 330 Sparks Street
Ottawa, Ontario, Canada
K1A 0N5
Telephone: (613) 991-2518
E-mail: langlal@tc.gc.ca

Appendix A

Detailed Description of Transaction Review Process

When is Notice Required

Every person who is required to notify the Commissioner of Competition under subsection 114(1) of the Competition Act of a proposed transaction that involves a federal transportation undertaking shall, at the same time as the Commissioner is notified and, in any event, not later than the date by which the person is required to notify the Commissioner,

( a) give notice of the proposed transaction to the Minister; and

(b) in the case of a proposed transaction that involves an air transportation undertaking, also give notice of the transaction to the Canadian Transportation Agency.

What must the Notice Contain

A notice given to the Minister or to the Agency shall, subject to the regulations, contain the information required under subsection 114(1) of the Competition Act or the information provided in support of a request for an advance ruling certificate pursuant to section 102 of the Competition Act. The notice shall also contain any information with respect to the public interest as it relates to national transportation that is required under these Guidelines. After receipt of a notice, the Minister may require the person who has given the notice to provide further information.

Where No Public Interest Issues Raised

If the Minister is of the opinion that the proposed transaction does not raise issues with respect to the public interest as it relates to national transportation, the Minister shall, within 42 days after a person gives notice, give notice of the opinion to that person, in which case the transaction can be completed without any further approval under the Act.

Where Public Interest Issues Raised

If the Minister is of the opinion that the proposed transaction raises issues with respect to the public interest as it relates to national transportation, the Minister may direct the Canadian Transportation Agency to examine those issues or appoint and direct any person to examine those issues under the Department of Transport Act. The Minister will also inform the Commissioner that a public interest review has been initiated and a report on competition concerns is required.

Public Interest Examination Report Filed

The Agency or person conducting the examination shall report to the Minister within 150 days or within any longer period that the Minister may allow.

Report of Commissioner of Competition

The Commissioner of Competition shall within 150 days after the Commissioner is notified of the proposed transaction under subsection 114(1) of the Competition Act, or within any longer period that the Minister may allow, report to the Minister and the parties to the transaction on any concerns regarding potential prevention or lessening of competition that may occur as a result of the transaction. The Commissioner's report is made public after its receipt by the Minister.

Minister's Consultations with Commissioner

After receipt of the Commissioner's report and the report on public interest, the Minister shall consult with the Commissioner regarding any overlap between any concerns that the Minister has in respect of the proposed transaction with regard to the public interest as it relates to national transportation and any concerns in respect of the transaction that are raised in the Commissioner's report.

Minister's Request to Parties

The Minister shall request the parties to the transaction to address, with the Minister, any concerns that the Minister has in respect of the transaction with regard to the public interest as it relates to national transportation; and with the Commissioner, any concerns that the Commissioner has regarding potential prevention or lessening of competition that may occur as a result of the transaction.

After conferring with the Minister and the Commissioner respectively, regarding any concerns, parties may inform the Minister or the Commissioner as the case may be of any measures they are prepared to undertake to address those concerns including proposed revisions to the transaction.

Recommendation of Minister

After obtaining the Commissioner's assessment of the adequacy of any undertaking proposed by the parties to address the concerns that have been identified and the effects of any proposed revisions to the transaction on those concerns, the Minister will make a recommendation to the Governor in Council in respect of the proposed transaction.

Approval of the Governor in Council if transaction in the public interest

If the Governor in Council is satisfied that it is in the public interest to approve the proposed transaction, taking into account any revisions to it proposed by the parties and any measures they are prepared to undertake, the Governor in Council may, on the recommendation of the Minister, approve the transaction and specify any terms and conditions that the Governor in Council considers appropriate. The Governor in Council shall indicate those terms and conditions that relate to potential prevention or lessening of competition and those that relate to the public interest as it relates to national transportation.

Determination by CTA

If the transaction involves an air transportation undertaking, the Canadian Transportation Agency shall determine whether the transaction will result in an undertaking that is Canadian, pursuant to the definition of Canadian in section 55 of the Act.

Appendix B

National Transportation Policy

Canada Transportation Act, S.C. 1996, c.10, s.5., as amended

It is declared that a competitive, economic and efficient national transportation system that meets the highest practicable safety and security standards and contributes to a sustainable environment and makes the best use of all modes of transportation at the lowest total cost is essential to serve the needs of its users, advance the well-being of Canadians and enable competitiveness and economic growth in both urban and rural areas throughout Canada. Those objectives are most likely to be achieved when

(a) competition and market forces, both within and among the various modes of transportation, are the prime agents in providing viable and effective transportation services;

(b) regulation and strategic public intervention are used to achieve economic, safety, security, environmental or social outcomes that cannot be achieved satisfactorily by competition and market forces and do not unduly favour, or reduce the inherent advantages of, any particular mode of transportation;

(c) rates and conditions do not constitute an undue obstacle to the movement of traffic within Canada or to the export of goods from Canada;

(d) the transportation system is accessible without undue obstacle to the mobility of persons, including persons with disabilities; and

(e) governments and the private sector work together for an integrated transportation system.

Appendix C

Notifiable Transactions Regulations, SOR/87-348*

16. For the purposes of subsection 114(2) of the Act, the short form information is the following:

(a) a description of the proposed transaction and the business objectives intended to be achieved as a result of it;

(b) a list of foreign authorities that have been notified of the proposed transaction by the parties and the date of the notification; and

(c) in respect of each party,

(i) its full name,

(ii) the addresses of its principal offices,

(iii) a list of its affiliates that have significant assets in Canada or significant gross revenues from sales in, from or into Canada and a chart describing the relationships between the party and those affiliates, and

(iv) a description of its principal businesses and the principal businesses of its affiliates referred to in subparagraph (iii), including

(A) their most recent annual report and, if the annual report is not available or if the financial statements are different from those contained in the report, audited financial statements relating to their principal businesses for their most recently completed fiscal year, and financial statements for subsequent interim periods,

(B) a summary description of each of the principal categories of products, as defined by the party in its day-to-day operations, that it produces, supplies or distributes and each of the principal categories of products produced, supplied or distributed by its affiliates referred to in subparagraph (iii),

(C) statements identifying, for each of those principal categories of products, the twenty most important current suppliers and customers, the contact names, the telephone numbers and addresses of those suppliers and customers, and the annual volume or dollar value of purchases from and sales to those suppliers and customers, and

(D) the geographic regions of sales for its principal businesses and the principal businesses of its affiliates. SOR/2000-8, s. 7.

17. For the purposes of subsection 114(2) of the Act, the long form information is the following:

(a) a description of the proposed transaction and the business objectives intended to be achieved as a result of it;

(b) copies of the legal documents, or the most recent drafts of them if the documents have not been executed, that are to be used to implement the proposed transaction;

(c) a list of foreign authorities that have been notified of the proposed transaction by the parties and the date of the notification;

(d) in respect of each party, a list of its affiliates that have significant assets in Canada or significant gross revenues from sales in, from or into Canada, and a chart describing the relationships between the party and those affiliates; and

(e) in respect of each party, and each of its affiliates referred to in paragraph (d),

(i) its full name,

(ii) the addresses of its principal offices and, in the case of a corporation, the jurisdiction under which it was incorporated,

(iii) the names and positions of its senior officers,

(iv) a description of its principal businesses, including

(A) its most recent annual report and, if the annual report is not available or if the financial statements are different from those contained in the report, audited financial statements relating to its principal businesses for its most recently completed fiscal year, and financial statements for subsequent interim periods,

(B) the principal categories of products, as defined by each party and each of its affiliates in its day-to-day operations, which it produces, supplies or distributes,

(C) statements identifying, for each of those principal categories of products, the forty most important current suppliers and customers, the contact names, the telephone numbers and addresses of those suppliers and customers, and the annual volume or dollar value of purchases from and sales to those suppliers and customers,

(D) the location of the principal offices of each of its principal businesses, and

(E) the geographic regions of sales for its principal businesses,

(v) the gross sales for each principal category of products, for its most recently completed fiscal year,

(vi) the principal categories of products that a senior officer has given approval to develop or make commercially available during the three-year period following the date of notification to the Commissioner, the anticipated gross sales for each category of products, and

(A) the facilities from which each category of products is planned to be produced, supplied or distributed and the planned production capacity of each facility, and

(B) the geographic regions where each category of products is planned to be supplied or distributed,

(vii) for each of the principal categories of products identified in clause (iv)(B) that, to the extent known by that party, are produced, supplied or distributed by both that party or its affiliates and the other party to the proposed transaction or its affiliates,

(A) the location of all warehouses, plants, retail establishments or other places from which each such category of products is produced, supplied or distributed,

(B) for each facility identified in clause (A), the geographic regions where each such category of products is supplied or distributed by that party,

(C) the principal mode of transportation for each such category of products in each geographic region identified in clause (B),

(D) the total annual cost of transportation expressed in dollar values, the total revenues in dollars, and the total number of units shipped, for each such category of products and each geographic region identified in clause (B), and

(E) the current production capacity and the current rate of capacity utilization of each facility identified in clause (A), calculated in accordance with the methods used by that party in its day-to-day operations,

(viii) the principal categories of products purchased or acquired by each party and each of its affiliates, and its total expenditures for each principal category of product, for its most recently completed fiscal year,

(ix) the number of votes attached to voting shares held, directly or indirectly through one or more affiliates or otherwise, by each party in any corporation carrying on an operating business, whether through one or more subsidiaries or otherwise, where the total of all votes attached to shares so held exceeds twenty per cent of the votes attached to all outstanding voting shares of the corporation,

(x) the share of profits of any combination carrying on an operating business or the share of its assets on dissolution which the party, together with its affiliates, is entitled to, where the party is entitled to more than thirty-five per cent of the profits of the combination or more than thirty-five per cent of its assets on dissolution,

(xi) a copy of every proxy solicitation circular, prospectus and other information form filed with a securities commission, stock exchange or other similar authority in Canada or elsewhere, or sent or otherwise made available to shareholders within the previous two years,

(xii) all reports, studies, surveys and analyses, that were prepared or received by a senior officer, together with an indication of the date of preparation, and the name and title of the author of each document, that were prepared for the purpose of evaluating or analysing the proposed transaction with respect to

(A) the principal categories of products identified in subparagraph (vii), and

(B) its potential impact on

(I) prices for those principal categories of products,

(II) market shares for those principal categories of products,

(III) the competition or the competitors for those principal categories of products,

(IV) innovation, and

(V) the potential for sales growth or expansion into new products or geographic regions,

(xiii) to the extent available, the financial statements of

(A) the acquiring party, in the case of a proposed transaction referred to in paragraph 114(1)(a) of the Act,

(B) the continuing corporation, in the case of a proposed transaction referred to in paragraph 114(1)(b) of the Act, or

(C) the combination, in the case of a proposed transaction referred to in paragraph 114(1)(c) of the Act,

prepared on a pro forma basis as if the proposed transaction had occurred previously,

(xiv) if any of the parties have taken a decision or entered into a commitment or undertaking to make significant changes in any business to which the proposed transaction relates, a summary description of that decision, commitment or undertaking, and

(xv) all marketing, business and strategic plans, and similar documents that were prepared or received by a senior officer, and that have been implemented in Canada over the last three years or are to be implemented in Canada, for each of the principal categories of products referred to in subparagraph (vii). SOR/2000-8, s. 7.

*For a complete review of legislative provisions relating to notifiable transactions, please refer to the Competition Act, its regulations, and any guidelines or policy documents issued by the Competition Bureau.


1 The National Transportation Policy is found in section 5 of the Canada Transportation Act, S.C. 1996, c. 10, as amended by S.C. 2007, c.19, s.2 and is reproduced in Appendix B.

2 The information that is required to be provided to the Commissioner of Competition under the Competition Act includes either the "short form information" or the "long form information" required to be submitted under section 16 or 17 of the Notifiable Transaction Regulations issued under the Competition Act (See Appendix "C"). It also includes information submitted in support of a request for an advance ruling certificate pursuant to section 102 of the Competition Act.

Date modified: