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Supreme Court Merger Case in Canada: The Tervita Decision

In 2010, Tervita Corporation purchased Babkirk Land Services Inc. in British Columbia, Canada. Tervita owned the only two hazardous waste landfills in British Columbia. Babkirk had a permit for a hazardous waste landfill at a site located between Tervita’s two landfills. Babkirk planned to provide bioremediation services at the site and use its hazardous waste permit for storing untreatable waste. The Canadian Commissioner of Competition challenged the merger as an attempt by Tervita to prevent future competition from Babkirk and to preserve its monopoly.

Henry J. Kahwaty served as the testifying expert economist for the merging parties, and Brad Noffsker and Cleve B. Tyler served as consulting experts. Dr. Kahwaty identified the geographic area in which the Babkirk site might compete with Tervita’s closest landfill by analyzing tipping fees and estimating transportation costs from every drilling well (the source of most hazardous waste) in British Columbia. This “Contestable Area” was accepted by the Competition Tribunal as the geographic market in which to analyze competitive effects. Moreover, Dr. Kahwaty identified inconsistencies in the econometric analyses performed by the Commissioner’s expert economist. The Tribunal found that two econometric analyses developed by the Commissioner’s expert economist were “not particularly helpful.” Dr. Kahwaty also estimated efficiencies directly attributable to the merger, including both quantifiable and qualitative efficiencies.

The Competition Tribunal ruled that the merger was anticompetitive, and the Federal Court of Appeal upheld that ruling. However, the Supreme Court of Canada (in its first ruling on mergers in nearly twenty years) ruled that the merger should be allowed, given that the Commissioner did not meet her burden regarding quantification of anticompetitive effects and given that certain efficiencies were proven. Dr. Kahwaty had testified that critical information about the demand elasticity was not estimated by the Commissioner or her economic expert that would be required to quantify competitive effects. Dr. Kahwaty’s testimony was cited directly by the Supreme Court in its decision regarding the burden of the Commissioner and her failure to meet that burden in this matter. The Tervita decision has impacted the requirements for quantifying competitive effects for subsequent merger cases in Canada.

Drs. Kahwaty and Tyler published an article on market definition and competitive effects issues in the Tervita case. This article, Market Definition – Achieving an Integrated Analysis” in Antitrust Bulletin, discusses the inconsistencies of the models developed by the Commissioner’s expert economist. Those econometric models were not given weight by the Competition Tribunal or in subsequent appeals. Drs. Kahwaty and Tyler also discuss the Supreme Court decision in their article “Canada High Court Breathes New Life Into M&A Efficiencies” in Law360.

The views and opinions expressed in this case study are those of the experts and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.

Professionals

Related Professionals

Henry Kahwaty

Managing Director

Washington, DC

Cleve B. Tyler

Managing Director

Washington, DC
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Brad Noffsker

Director

College Station