Competition review for potash industry mergers

By Bruce Harrison and Matthew J. Bennett, Lawyers McKercher LLP

The Competition Act (the “Act”) was enacted in Canada in 1889 to regulate activities that the Competition Tribunal considers ‘anti-competitive’, such as price-fixing, bid-rigging, or conspiracies. The Act provides power to initiate a review of mergers or acquisitions that may result in an anti-competitive market. The Act allows the Commissioner of Competition (the “Commissioner”) to review a transaction and reject or demand modifications to the transaction if it would substantially prevent or lessen competition in the market.

Mergers among producers with significant market share, as is the case in the potash industry, could undergo a review by the Commissioner. The combined production of potash between Saskatchewan producers may create the fear of greater control over the fertilizer market and reduced production to raise the price of potash.

The Commissioner will review whether there is effective competition remaining after the merger and could require the merging firms to sell off assets to other competitors to ensure a more balanced marketplace. The Commissioner can challenge the transaction on the basis that it prevents, lessens, or is likely to prevent or lessen, competition within the market.

The Competition Tribunal will consider the concerns of customers, suppliers, various levels of government, competitors, and other stakeholders. The President of the Agricultural Procedures Association of Saskatchewan, the Keystone Agricultural Producers and the American Soybean Association have all raised concerns to the Commissioner regarding vertical integration in the potash industry, particularly as it relates to both production and retail price distortions.

If the agriculture producers are successful in their argument, or the Commission otherwise determines that competition may be substantially lessened within the fertilizer market, a lengthy regulatory process would commence where the parties would be required to justify the transaction or propose divestment of certain assets to maintain competitive balance. This process could block the deal altogether or force the new company to divest some portion of its holdings, perhaps negating some advantages of the deal.

While the Competition Bureau in Canada will assess the impact of any deal in Canada, one can expect that the American competition agencies may undertake their own review or work with the Commissioner to examine the effect on fertilizer consumers in the United States. Potash companies are no stranger to U.S. scrutiny for anti-competitive practices. Together, Canadian-based potash producers paid nearly $55 million in 2013 to settle claims in the United States by plaintiffs who alleged price fixing.

Unlike in the United States, Canadian competition law prohibits the Competition Tribunal from issuing an order preventing a merger if the companies can demonstrate that the efficiency gains from the merger would be greater than the potential reduction in competition that would result from it.

While most mergers are approved, high-profile mergers, or mergers between larger publicly traded companies are more complex. All stakeholders should be aware that they have the right to be heard before the Competition Tribunal when the tribunal deliberates whether a merger violates the Competition Act.

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