Superior Plus-Canexus gets past hamstrung Canadian officers only to run into US suit

31 January 2017 9:55am

28 June 2016. By Richard Vanderford.

Canadian chemical companies Superior Plus and Canexus avoided a lawsuit from their country’s hamstrung competition enforcers, who resorted to another option: Let the Americans sue.

Canada’s Competition Bureau said Tuesday that the proposed $982 million merger of Toronto-based Superior Plus and Calgary-based Canexus will likely cause a “substantial lessening of competition” in the nation’s chemical markets.

The bureau won’t oppose the tie-up, though, because Canada’s competition law recognizes a defense for mergers that create “efficiencies,” the cost-saving streamlining of operations that can occur when companies combine.

“The bureau concluded that the anticompetitive effects of the merger would be clearly outweighed by the efficiency gains from the transaction,” it said in a statement.

While the bureau is restricted in its home courts, it can watch — and quietly cheer — from the sidelines as the US Federal Trade Commission, a close international partner, takes on the merger in Washington.

The FTC sued Monday to block the deal. The merger would significantly reduce competition by combining more than half of all North American production capacity for sodium chlorate, a chemical used to bleach wood pulp to make paper and tissue, the commission said.

The companies agreed to put the merger on hold while the case is litigated. They’ve said they’re contemplating extending a June 29 deadline to close the merger so that they can fight the suit in court.

The case could provide a template for how the Canadian bureau might effectively sidestep the efficiencies defense, a persistent irritant for its enforcers.

The efficiencies defense in theory lets Canada’s relatively small economy incubate big firms that can compete internationally.

It also allows big Canadian firms to efficiently gouge local customers, with little recourse for competition enforcers.

Canada’s Supreme Court last year made things worse for bureau lawyers, who want to challenge mergers, ruling in the Tervita case that even a weak efficiencies defense has to be thoroughly analyzed.

That decision allowed a landfill merger in a remote part of British Columbia to stand.

The court itself acknowledged that Parliament probably didn’t intend to protect that kind of merger from challenge. “I tend to think that this case may not represent one that Parliament had in mind in creating the efficiencies defence,” Justice Marshall Rothstein wrote. Still, the court found the law as written protected the merger.

Merger challenges in Canada now must take into account the defense in a rigorous, quantified way, a headache for bureau enforcers.

However, the Superior-Canexus case shows another option for enforcing competition law when the merger is continentally significant: Canadian officials can step aside and trust US enforcers to do the policing, while helping out behind the scenes.

In this case, the bureau “cooperated closely” with the FTC, it said. Collaboration between the agencies isn’t unusual. They have good working relationships down to the staff level. Canada even sent lawyers to assist the FTC in a challenge to the recently proposed Staples-Office Depot merger.

Though Canada’s Competition Bureau itself sued to block that merger, the case’s timetable allowed the US proceeding to unfold — and as it turned out, torpedo the deal — before the bureau had to argue its own case before the country’s Competition Tribunal.

The US challenge to the Superior-Canexus deal, if successful, could create a framework for that already deep cooperation to pay bigger dividends for the bureau. Now it might be able to take on mergers it finds hurt competition, even when Canadian law gets in the way.

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