Can competitors share information during merger due diligence?

A buyer has to see inside a business to assess it, which puts a seller who competes with its buyer in a real tension. The care comes from timing. Until closing the two businesses are still independent rivals, and the Competition Act speaks directly to what rivals may agree between themselves.

What the Competition Act targets

The Act makes it an offence for competitors to agree to fix or control prices, to allocate sales, territories, customers or markets, or to fix, control, prevent, lessen or eliminate production or supply. A court may infer an agreement from circumstantial evidence, with or without direct evidence of communication between the parties, although it must still be proved beyond a reasonable doubt. A separate civil provision lets the Competition Tribunal, on application, make orders about an agreement or arrangement between persons two or more of whom are competitors, where it prevents or lessens competition substantially in a market.

Why a deal changes the picture

Under the Act, acquiring control of, or a significant interest in, all or part of a competitor’s business by buying its shares or assets is a merger. The Competition Bureau may review any merger regardless of size, including one that is not notifiable, and the parties to a notifiable transaction must notify the Bureau and wait before they close. When it reviews a deal, the Bureau consults the wider market, including competitors, suppliers and customers, so a review reaches well beyond the two parties at the table.

Which details call for the most care

The wording of the offence points to the categories to handle most carefully when the parties are rivals: current prices, customer-by-customer terms, and production or supply plans. Whether an exchange is acceptable depends on the facts, so ask a lawyer how to stage it, for example by summarizing the figures, limiting who on each side sees them, or holding back the most sensitive items until the closing is certain.

Questions to settle before the first data request

• Is the transaction notifiable, and what does that mean for what may be exchanged before closing?
• Which items are competitively sensitive between these two businesses, and who on each side may see them?
• What happens to the information if the deal does not close, and does the non-disclosure agreement address it?