APPENDIX B
MERGER REVIEW GUIDELINES
Department of Finance - News Release 01-014 -
On June 25, 1999, in Reforming Canada's Financial Services Sector: A Framework for the Future, the Government noted that:
In this era of rapid economic change, technological revolution and globalization, mergers and acquisitions are legitimate business strategies for growth and success. However, given the key importance of the financial services industry, and the largest banks in particular, to the entire Canadian economy, it is essential to ensure that proposed mergers are in the best interests not only of their proponents, but of Canadians and the Canadian economy overall. To this end, the Government will establish a formal and transparent Merger Review Process among banks with equity in excess of $5 billion.
This document spells out the framework for the new Merger Review Process. This process applies to mergers among banks and bank holding companies with equity in excess of $5 billion. The application of the process will take into account changing circumstances in the condition of the banks.
There are three distinct phases to the Merger Review Process: an examination stage, a decision stage and, if required, a remedies stage.
Subject to the prerogatives of Parliament, the Government will seek to complete the decision stage of its review of major transactions within a maximum of five months after receiving a complete application and adequate supporting documentation from the parties. This will depend on the co-operation of the merging parties to quickly provide all of the necessary information for the assessment of the transaction.
Stage 1: Examination of the Proposal
| | 1. | The banks will apply to the Competition Bureau, the Office of the Superintendent of Financial Institutions (OSFI) and the Minister of Finance in writing for permission to merge and will provide information necessary to assess the merger request. |
| | 2. | The applicants will be required to prepare a Public Interest Impact Assessment (PIIA). |
| | 4. | Concurrently with the Bureau and OSFI reviews, the House of Commons Standing Committee on Finance (Finance Committee) and the Standing Senate Committee on Banking, Trade and Commerce (Senate Committee) will be asked to conduct public hearings into the broad public interest issues that are raised by the merger proposal, using the PIIA as a key input. |
| | 5. | Once they have completed their analyses of the proposed merger, the Commissioner of Competition and the Superintendent of Financial Institutions will provide to the applicants and to the Minister of Finance a letter with views on the competitive and prudential aspects of the proposed merger. |
| | 6. | Upon receiving the inputs of the Competition Bureau and OSFI, the Minister of Finance will publicly release the documents, with due regard to the need to maintain the confidentiality of commercially sensitive information and information that may affect the stability of the Canadian financial system. These public documents will be available for scrutiny by the Finance Committee and Senate Committee. |
| | 7. | Upon completion of its hearings and deliberations, the Finance Committee and Senate Committee will each report to the Minister of Finance on the broad public interest issues that are raised by the proposed merger. |
Contents of the PIIA
| | 8. | In the PIIA, the applicants explain the rationale for the merger and the steps that they could take to mitigate any potential costs or concerns. It should be made widely available to provide a solid basis for public hearings on the transaction. Applicants will be expected to articulate the following in the PIIA: |
| | • | their business case and objectives, that is, why they wish to merge; |
| | • | the possible costs and benefits to customers and small and medium-sized businesses, including the impact on branches, availability of financing, price, quality and availability of services; |
| | • | the timing and socio-economic impact of any branch closures or alternative service delivery measures at the regional level, and any alternative service delivery measures that might mitigate the impact; |
| | • | how the proposal would contribute to the international competitiveness of the financial services sector; |
| | • | how the proposal would affect direct and indirect employment and the quality of the jobs in the sector, distinguishing between transitional and permanent effects; |
| | • | how the proposal would increase the banks' ability to develop and adopt new technologies; |
| | • | what remedial or mitigating steps in respect of public interest concerns the banks are prepared to take, such as divestitures, service guarantees and other commitments, and what measures to ensure fair treatment of those whose jobs are affected; and |
| | • | the impact the transaction may have on the overall structure of the industry. |
| | 9. | The PIIA will also cover any additional issues that the Minister of Finance or the parties deem relevant in the context of a particular proposed transaction. |
Stage 2: Minister of Finance Decision
| | 10. | Using the reports of the Competition Bureau, OSFI, the Finance Committee and the Senate Committee as inputs, the Minister of Finance will render a decision on whether the public interest, prudential and competition concerns that are raised by the transaction are capable of being addressed. If not, the transaction will be denied and the process will stop at this stage. If these concerns are capable of being addressed, the Merger Review Process will enter the negotiation of remedies stage. |
Stage 3: Negotiation of Remedies
| | 11. | The Competition Bureau will negotiate the competition remedies and OSFI the prudential remedies with the merger applicants, and will work with the Department of Finance in co-ordinating an overall set of public interest remedies (including possible divestitures). These remedies would address concerns that have been raised during the review process. |
Following the successful negotiation of remedies, the Minister of Finance will approve the transaction with terms and conditions that reflect those remedies.
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