Is buying a foreign parent with a Canadian subsidiary reviewable?

A Canadian subsidiary does not stay outside Canadian review just because the buyer is purchasing its foreign parent. Two federal regimes can still apply, and they ask different questions. One looks at competition in the target’s Canadian business, the other at who the buyer is.

The Competition Act looks at the Canadian footprint

Part IX of the Competition Act applies to a proposed acquisition of voting shares of a corporation that carries on an operating business, or controls an entity that does, subject to size tests that count assets in Canada or revenues from sales in, from or into Canada, and to a test of how much of the corporation’s voting power the buyer would hold. An operating business is a business undertaking in Canada to which employees ordinarily report for work. The Competition Bureau says whether notification is required turns on thresholds for the size of the parties and the transaction.

Deals below the threshold can still be challenged

Notification is not the only route. The Competition Bureau says mergers that do not require pre-merger notification may still raise competition concerns and be investigated, and it may challenge a merger that was never notified for a period after closing. Contacting the Bureau before closing is the course it encourages.

The Investment Canada Act looks at the buyer

ISED says all non-Canadians who acquire control of an existing Canadian business are subject to the Investment Canada Act and must file either a notification or an application for review, unless an exemption applies. Which filing a purchase of a foreign parent triggers depends on rules in the Act and in ISED’s guidelines and interpretation notes, so a non-Canadian buyer should check them early. The Act also allows national security review of foreign investments of any size.

Questions to settle first

• Is the buyer a Canadian or a non-Canadian under the Act?
• Does the parent control an entity carrying on an operating business in Canada?
• What are the Canadian assets and revenues, measured as the Competition Act requires?
• Does the Canadian business touch a sector that raises national security questions?