Widespread public interest may have increased the urgency of the Rogers-Shaw case.Tijana Martin/The Canadian Press
In less than a week, Canada’s anti-competitive watchdog will face off against two telecom giants in the biggest case ever heard by the Competition Tribunal. And the independent agency is fighting its case in an arena where it has never entirely succeeded.
The Competition Bureau, the country’s competition regulator, is asking the tribunal to support its May application to fully block Rogers Communication Inc.’s RCI-B-T proposed $26-billion takeover of Shaw Communications Inc., SJR-B-T now a year and a half in the making. But such a blanket success would set a precedent.
“No contested case before the tribunal in a merger matter has ended in an order to stop the merger completely,” said Jennifer Quaid, an associate professor at the University of Ottawa’s Faculty of Law.
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The tribunal is facing unprecedented pressure as it prepares to launch five weeks of testimony in a case that has attracted widespread public attention, raising issues as rudimentary as the cost of a cellphone bill, and as complex as the structure of Canada’s competition law. The tribunal has never ruled on such prominent matters, Prof. Quaid said.
The stakes are high for the companies, too. Rogers RCI-B faces hundreds of millions of dollars in fees to its lenders if the deal doesn’t go through before the end of the year, and risks a lawsuit from Shaw if things go awry.
On Nov. 7, the Competition Tribunal will be faced with, as Prof. Quaid puts it, “a perfect storm.”
Here’s what to expect.
The tribunal, established in 1986 when the Competition Act was revamped, is Canada’s merger court – a quasi-judicial body that adjudicates on matters of civil competition. It is comprised of a three-person panel, usually consisting of two judges – typically appointed from the Federal Court – and one “lay person” selected from a relevant industry.
As the applicant, the Competition Bureau will begin by presenting its case, where it will bear the burden of showing that the merger would on a balance of probabilities “substantially lessen or prevent” competition, under the framework of the Competition Act.
Once the bureau has finished presenting its evidence, the companies, as respondents, will present their defence.
They are expected to lead a two-pronged approach. First, they will challenge the bureau’s case that there are anti-competitive effects at all. Second, in the case that there are proven anti-competitive effects, they will attempt to use the “efficiencies defence” to show that synergies, cost savings and other economic benefits that will flow from the merger are enough to reduce its anti-competitive effects.
After the defence has presented its evidence, the Commissioner will have the opportunity to reply to any new evidence or to address any issues raised by the defence.
Five weeks have been set aside for the parties to present their evidence and arguments. After that, the tribunal members assigned to the case will deliberate and then issue a decision on whether it finds that there is indeed a competitive issue and if so, what remedy is required.
If the tribunal finds the deal is not anti-competitive, the merger can proceed.
Alternatively, if the tribunal decides that the merger would indeed lessen competition, it will have three remedy options.
The first is to block only the part of the merger that raises competition concerns. The second would be to order a divestiture sufficient to address the anti-competitive concerns, said Prof. Quaid.
“The Supreme Court has said that the order must be the least invasive possible to address the problem. It is bounded only by what is needed to address the competition problems that are identified,” she said.
The final option would be to block the merger entirely – the bureau’s ideal solution, but one that has never been ordered.
There have been six such cases that have received a ruling.
In two cases, the tribunal ordered a remedy in the form of the divesture of assets (the Southam case, ultimately affirmed by the Supreme Court in 1997, and in the Canadian Waste Services case in 2001).
In two other cases, it did not issue an order because it did not find that there was a substantial lessening of competition (the Hillsdown Holdings case and recently, Parrish and Heimbecker).
In two more cases (Superior Propane and Tervita), the tribunal found that they were indeed anti-competitive (and would result in monopolies), but it ruled that the companies’ efficiencies defence was successful. In the case of Tervita, this came as a result of an appeal that was allowed by the Supreme Court of Canada.
That means in all six cases, the companies were able to proceed.
This is not to say that the bureau hasn’t been successful in preventing what it has seen to be anti-competitive mergers. On several other occasions where it put its foot down, the companies involved accommodated the bureau’s requested remedies to avoid going to court, or called off their merger entirely.
Bureau spokesperson Jayme Albert said in a statement that it has settled four contested mergers – those that have made it to court – in the past ten years, and many more before they ever reach hearings at all.
“We prefer to resolve situations by mutual agreement rather than proceed to the tribunal; however, we will not compromise our responsibility to preserve competition in the marketplace,” said Mr. Albert.
Experts say this means that only those companies that believe their legal case is strong enough to win in court fight the bureau’s demands all the way to the tribunal. As a result, the opponents that the bureau faces in hearings – which are typically lengthy and costly procedures – are the most determined and well-resourced.
With thousands of pages of witness testimony to work through, observers say they aren’t expecting a decision on the case until at least January.
The Competition Tribunal has historically taken several months to more than a year to render a decision. It issued its decision on the Parrish and Heimbecker case on Oct. 31, for example, 18 months after the hearings took place in February, 2021, and 21 months after the bureau had initially filed its application to block the grain company’s acquisition of a grain elevator in Manitoba.
In the end, it was ruled that the company could keep the elevator – the bureau has since said it is reviewing the decision.
However, vast public interest has increased the urgency of the Rogers-Shaw case, said Michael Osborne, a competition lawyer at law firm Cozen O’Connor. He expects the tribunal will likely try to “buckle down” and come to a decision in just a few months.
Any delay will be costly – especially for Rogers.
If the deal doesn’t close by the end of this year, Rogers will be required to pay around $250-million in fees to lenders (an amount that could vary depending on the U.S. dollar exchange rate). This is after it already paid $520-million in fees to extend the initial Dec. 31, 2022, deadline by a year to 2023.
Also raising the stakes for Rogers is a clause it signed with Shaw when the companies first entered into an agreement. Under what is known as the “hell or high water” clause, Rogers agreed to accept any conditions set out by regulators in order to gain approval, including selling off not only Shaw’s wireless assets, such as customer accounts or wireless airwaves, but also some of its own. That means Rogers cannot simply throw up its hands and walk away.
With so much on the line, Prof. Quaid said that whatever the result, she expects that the case will likely be appealed. Tribunal decision challenges are heard at the Federal Court of Appeal.
“Unlike many other specialized administrative tribunals, the Competition Tribunal gets basically no credit for the decisions it makes. Everything is up for grabs,” said Prof. Quaid.
If the bureau loses, she said, it could further delay the merger by seeking a stay preventing the deal from closing until that appeal can be heard.
“I would expect that there would be no reason why the losing party wouldn’t appeal, especially if it’s the merging parties, if they have the money to do it.”