Compliance Alert: The Importance of Managing Document Creation in M&A Transactions

Download this publication January 15, 2013

For anyone considering the sale or acquisition of a business in Canada in 2013, we suggest that your New Year's resolutions include the following: "I will not jeopardize my transaction's chances for success by creating internal documents that are likely to attract the Competition Bureau's attention."

If the reasons for adopting this type of resolution are not clear already, then we refer you to the U.S. Department of Justice's ("U.S. DOJ") lawsuit of January 10, 2013 challenging Bazaarvoice Inc.'s acquisition of PowerReviews Inc. (see http://www.justice.gov/atr/public/press_releases/2013/291185.htm). The acquisition, which was below the relevant merger notification thresholds in the United States, closed in June 2012.

The U.S. DOJ alleges that the PowerReviews acquisition substantially lessens competition in the U.S. market for online platforms for customer product ratings and reviews. Central to the U.S. DOJ's case are internal Bazaarvoice documents which allegedly demonstrate that Bazaarvoice's objective in proceeding with the acquisition was to put an end to aggressive price competition from PowerReviews. For example, according to the U.S. DOJ:

  • one of Bazaarvoice's co-founders wrote that the PowerReviews acquisition would "[e]liminat[e] [Bazaarvoice's] primary competitor" and provide "relief from … price erosion";
  • Bazaarvoice's current CEO wrote that Bazaarvoice had "literally, no other competitors" beyond PowerReviews; and
  • Bazaarvoice's former CEO predicted that, as a result of the acquisition, Bazaarvoice would have "[n]o meaningful direct competitor".

The Bazaarvoice/PowerReviews challenge is just the latest in a long line of cases where competition authorities have used statements found in internal company documents, including emails, as the basis for opposing merger transactions. Indeed, a recent report by the U.S. Federal Trade Commission discloses that this agency has taken enforcement action in almost 90 per cent of the cases in which it uncovered "hot documents", defined as company documents which "predict that the merger will produce adverse price or non-price effects on competition".

We have had the same experience in Canada. The most recent example saw the Competition Bureau initiate a successful challenge to a merger in the hazardous waste industry based, in part, on internal company documents (that merger was also below the relevant notification thresholds).

Managing the document creation process, therefore, should be one of the foremost considerations for companies and their advisors when contemplating a merger transaction in Canada (even small transactions that are not subject to formal notification). Guidelines should be circulated as soon as possible (we have precedent templates) and steps should be taken to ensure that competition counsel are able to review key documents early in the drafting process. This applies not only to internal company documents, such as management/board presentations, but also to materials prepared by third party advisors, such as investment bankers. All such documents may have to be produced to the Bureau, either as part of mandatory pre-merger notification or in response to information requests/orders.

There is an understandable tendency to try to "sell" merger transactions to stakeholders. Unfortunately, this often leads to the use of unhelpful and overly-aggressive language that can imply anti-competitive effects. Don't make the mistake of handing the Bureau the evidentiary rope with which to hang you; remember that words count in competition law, and none more so than one's own self-authored – and self-incriminating – statements.

If you have any questions regarding the foregoing, please contact Mark Katz (416.863.5578), Charles Tingley (416.367.6963) or Anita Banicevic (416.863.5523) in our Toronto office or Hillel Rosen (514.841.6443) in our Montréal office.

Davies Ward Phillips & Vineberg LLP is an integrated firm of more than 240 lawyers with offices in Toronto, Montréal and New York. The firm is focused on business law and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its clients, regardless of borders.

The information and comments herein are for the general information of the reader and are not intended as advice or opinions to be relied upon in relation to any particular circumstance. For particular applications of the law to specific situations, the reader should seek professional advice.


Mark C. Katz

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