Anonymised, illustrative composite. A national distributor sold its smallest division two different ways on paper before anyone realised the two structures put a different set of assets on the scale.
At a glance
A national industrial-distribution group built around three lines of business — fasteners, safety equipment and a smaller specialty-coatings line — agreed to sell the coatings line to a strategic buyer. Years earlier, for insurance and liability-segregation reasons unrelated to any eventual sale, the group had already dropped the coatings operations into a standalone, wholly-owned subsidiary, referred to here as Coatings Co. Coatings Co. also happened to hold, and always had held, a small dormant numbered subsidiary that owned a surplus distribution warehouse the group had never gotten around to selling separately.
The deal team's first instinct was an asset purchase of the coatings division's operating assets only — equipment, inventory, customer contracts, the coatings-specific leases — leaving the warehouse subsidiary with the seller, since the buyer had no interest in it. The buyer's lender preferred the opposite: a share purchase of Coatings Co. itself, which avoids re-assigning every permit, lease and customer contract one at a time. Counsel flagged that switching from an asset structure to a share structure did not just change the mechanics of closing. It changed which Competition Act test applied, and Coatings Co., as a whole corporation, carried more on its balance sheet than the coatings operations the buyer actually wanted.
The coatings division's own operating assets in Canada — what would move in an asset deal — were worth $58,000,000, with associated Canadian revenue of $41,000,000. Coatings Co.'s total assets in Canada, once the warehouse subsidiary and some legacy cash sitting on its balance sheet were counted in, came to $76,500,000, with consolidated Canadian revenue of $44,200,000 once a small property-rental line from the warehouse was added. Both parties independently and comfortably cleared the combined party-size floor in Competition Act s.109(1) regardless of structure — the buyer was a much larger multinational — so that limb never decided anything here. The size-of-transaction test in s.110 did, and the published amount that applied for the year of closing happened to sit between the division's stand-alone numbers and Coatings Co.'s consolidated numbers: the asset structure landed under it, the share structure landed over it.
Two subsections of the same section, and they measure two different things. Competition Act s.110(2) applies to a proposed acquisition of assets and is measured on “the aggregate value of the assets in Canada… or the gross revenues from sales in, from or into Canada… generated from all the assets proposed to be acquired”. Read the unit: it counts only what is being transferred to the buyer.
Section 110(3)(a)(i) applies instead to a proposed acquisition of voting shares, and it is measured on “the aggregate value of the assets in Canada… that are owned by the corporation or by entities controlled by that corporation, other than assets that are equity interests in those entities”. That is not the assets the buyer is economically interested in. It is everything the target corporation and anything it controls owns, full stop — the warehouse subsidiary included, because Coatings Co. controlled it, whether or not the buyer's commercial interest in the deal had anything to do with a warehouse.
There is a related trap the deal team also had to watch for. Where a transaction is structured as a mix of assets and shares in the same deal, the two measures cannot be used to find whichever is smaller: under s.110(3.1), “the value of the assets calculated under subsection (2) and the value of the assets calculated under subparagraph (3)(a)(i) are to be aggregated”, and the same for gross revenues. Splitting a deal into an asset piece and a share piece does not produce two smaller numbers to test separately — it produces one combined number.
Rather than closing a straight share purchase of Coatings Co. as it stood, the parties had the warehouse subsidiary distributed out to the parent before closing — itself a transaction between affiliates under common control at the time, which is its own exemption under Competition Act s.113(a) and needed no filing of its own. That reduced Coatings Co.'s asset base to the coatings operations alone, bringing the share purchase back under the same figure the asset purchase would have used. The deal closed as a share purchase without any Competition Act notification.
Had the parties closed the unadjusted share purchase — Coatings Co. with the warehouse subsidiary still inside it — without re-running the size test on the right unit, and it turned out (as it did) to exceed the published amount together with the voting-share limb in s.110(3)(b) (the buyer was acquiring 100% of the shares, well past 35%), the transaction would have needed to be notified before closing. That means the waiting period in s.123 would have applied, with the buyer's lender-driven closing date already fixed against a bridge facility that had no room for a 30-day delay it had not budgeted for.
The tell was treating the choice between an asset structure and a share structure as a financing and operational-convenience question only. The two structures have the same commercial destination but measure two different piles of assets under Part IX, and a target corporation's legacy, non-core holdings — the sort of thing nobody diligences carefully because nobody plans to keep them — can be exactly what pushes a share deal over a line an asset deal never approaches.
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