Superior Propane Jumps Legal Hurdle

It took four years and $15 million in private sector legal costs but Canada’s marquee antitrust case, involving Superior Propane Inc., was most likely concluded in late January. “The case has huge implications in Canada for m&a,” says Brian Facey, an attorney at Ogilvy Renault in Toronto. The $175 million takeover of rival ICG Propane Inc. was launched in July 1998. The Canadian competition watchdog, the Competition Bureau, challenged the deal in December of that year. The bureau acts as an investigator and prosecutor in matters related to federal competition law. The court allowed the transaction to close but set up a “hold separate” agreement in which the companies would operate the businesses independently until the legal wrangling ceased. After three additional challenges to the merger were launched in different venues, the Federal Court of Appeals, in its second look at the case, dismissed the Bureau’s objection to the pact. While the decision could still be appealed to the Supreme Court of Canada, Facey says that he thinks there will be no further appeal, in part because the Supreme Court previously chose not to hear the case. At issue is the balancing act between the efficiencies a merger may deliver and the substantial lessening of competition that might result from a combination. Despite the 70% market share that the enlarged Superior Propane would have, the appeals court ruled, “the efficiency gains from the merger are greater than, and offset the effects of, the potential lessening of competition.” Facey says that because Canada has a number of industries characterized by one major player and a number of smaller independents, the Superior Propane case could provide a blueprint for consolidation in many industries. “One significant effect of the Superior decision is that the onus of proof is now on the bureau with respect to the anticompetitive effects of a deal,” says George Addy, a competition attorney at the Toronto firm of Davies Ward Phillips & Vineberg. As a result of the decision, Canada will continue to have a viable, although somewhat complex, efficiencies defense. Part of the complexity of an efficiencies defense in the wake of Superior Propane comes from the court’s requirement that where effects and gains can be quantified, the bureau must include these data in its analysis. “As a result of the Superior Propane case, the bureau will increase the kinds and the amount of information it requests,” Addy states. But he notes that although the decision strengthens the role of quantifiable analysis in proving efficiencies, it doesn’t rule out other tests and potential justifications. In addition to a potential appeal to the Supreme Court, Addy says that the case could generate legislative changes that would address the manner in which specific efficiencies are treated in merger cases. Outside of Canada, Facey believes that the case shows U.S. and E.U. regulators that merger efficiencies can be quantified. This had been a major hurdle to consideration of efficiencies in the U.S. and elsewhere. But while quantifiable efficiencies may have a higher profile post-Superior Propane in the U.S., Facey cautions that the emphasis on consumer protection in U.S. antitrust law will offset some of the impact of the decision for American companies. Copyright 2003 Thomson Media Inc. All Rights Reserved. (http://www.thomsonmedia.com)