The purpose of this position statement is to provide information regarding the BureauCompetition Bureau’s published a note about the first experience with its draft model timing agreement and outline the analysis undertaken regarding Canadian National Railway Company’s (CN) acquisition of H and R Transport Limited (H and R).
"On November 18, 2019, the Bureau informed representatives of CN and H and R that the Commissioner of Competition decided to discontinue its investigation in respect of CN’s proposed acquisition of H and R (the Proposed Transaction).
"On July 19, 2019, the Commissioner entered into a Timing Agreement (the Agreement) with CN and H and R (the Parties) further to the draft model published.
"The model is intended to permit a reasonable period for merging parties to provide evidence to substantiate efficiencies claims and for the Bureau to assess both the anti-competitive effects and efficiencies claims before the Commissioner decides whether to file an application challenging a transaction before the Competition Tribunal.
"The Parties fulfilled their obligation under the Agreement to provide all supporting documents and data on efficiencies that would be lost if a remedial order were made in markets of concern identified by the Bureau.
"In addition, a representative from each of CN and H and R was examined under oath in regards to the claimed efficiencies.
"The Bureau fulfilled its obligations under the Agreement to provide the Parties with an estimate of deadweight loss in each market of concern, as well as an estimate of the efficiencies that the Bureau believed were substantiated as likely to be lost in the event of a remedy.
"The Bureau concluded that the Proposed Transaction would likely result in a substantial lessening of competition for full truckload refrigerated intermodal services in eight relevant markets in Canada.
"In particular, the Bureau concluded that CN would have the ability to charge customers materially higher prices and offer materially lower service quality in the relevant markets as a result of the Proposed Transaction.
"However, the Bureau also concluded, based upon its evaluation of the totality of the evidence gathered by the end of the Agreement, that the efficiency exception under section 96 of the Competition Act (Act) applied.
"Section 96 of the Act mandates that the Competition Tribunal shall not make an order in respect of an anti-competitive merger where the merger is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that are likely to result from the merger, and that the gains in efficiency would not likely be attained if the order were made.
"In conducting its investigation, the Bureau obtained information from multiple sources, including interviews with numerous stakeholders, information provided by CN, H and R and third parties, as well as analyses conducted by an independent efficiencies expert.
"On May 9, 2019, CN publically announced that it had reached an agreement to acquire certain intermodal shipping assets of H and R.
"H and R sold its over-the-road transportation division earlier in the year to a third party not affiliated with CN.
"The Proposed Transaction was not notifiable under Part IX of the Act.
"CN and H and R are both providers of intermodal transportation services in Canada.
"For domestic intermodal shipments, goods are transported in containers, using two (or more) modes of transportation, such as trucking and rail services.
"Intermodal service providers require access to intermodal equipment, trucking assets, as well as a relationship with a rail service provider (in Canada, either CN or Canadian Pacific Railway (CP)).
"CN’s rail services portfolio includes a separate intermodal division.
"CN has its own fleet of intermodal containers, including refrigerated containers for the shipment of temperature-sensitive, perishable goods like food.
"CN recently expanded its fleet through the acquisition of The TransX Group of Companies (TransX).
"Apart from directly providing retail customers with intermodal services, CN also supplies third party wholesale customers like H and R with rail services.
"Prior to the transaction, H and R specialized in the provision of refrigerated intermodal services and had its own fleet of refrigerated intermodal containers to support its retail customer base." ■