Anonymised, illustrative composite. Two propane distributors signed a share purchase agreement with a ten-week wait for a lender condition. The buyer started running the target immediately. The affiliate exception did not start until closing.
At a glance
Two regional propane distributors, competing head to head for the same commercial and residential delivery accounts across a shared service territory, signed a definitive share purchase agreement. Closing was conditioned on the buyer’s senior lender completing its own diligence and funding, a process both sides expected to take about ten weeks. The agreement included the customary interim covenants: the target would operate in the ordinary course, seek the buyer’s consent before entering contracts outside a stated dollar threshold, and give the buyer reasonable access to its books and operations.
In practice, “reasonable access” drifted well past diligence. The buyer’s regional operations manager began sitting in on the target’s weekly pricing meetings within two weeks of signing, and by week four was directly approving customer price changes rather than simply being informed of them. Delivery routes for several large commercial accounts were reassigned between the two companies’ trucks to save mileage — a sensible operational idea, and also a direct allocation of customers between two companies that would not become one company for another six weeks. The buyer also began making hiring and termination decisions for two of the target’s branch managers, on the reasoning that it would be running those branches soon enough that it should choose who ran them.
None of that is a merger-notification problem in the ordinary sense — the transaction was well under any notifiable-transaction threshold, and no filing was ever required. The exposure sits in a different part of the Act entirely. Competition Act s.45(1) provides: “Every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges (a) to fix, maintain, increase or control the price for the supply of the product; (b) to allocate sales, territories, customers or markets for the production or supply of the product…”. Until closing, the buyer and the target are exactly that — competitors with respect to propane delivery in an overlapping territory — and coordinated pricing decisions and customer reassignment between them is conduct the paragraph describes precisely.
The buyer’s counsel, brought in to review the interim-period conduct after an unrelated dispute surfaced it, put the point bluntly to the client: every week the buyer directed the target’s pricing or reassigned its customers before closing was a week of conduct between two companies the Act still treated as rivals.
Two of the reassigned accounts were worth roughly $340,000 in combined annual delivery volume, moved from the target’s trucks to the buyer’s routes six weeks before the companies had any lawful basis to coordinate that decision. The pricing changes the buyer approved during the interim period touched close to 15% of the target’s commercial customer base. None of those figures affect whether s.45(1) is engaged — the offence turns on the coordination itself, not on the dollar value of what was coordinated — but they are the measure of how much operational integration had already happened before the companies had any right to operate as one.
The affiliate exception the buyer’s team initially reached for does not reach back. s.45(6) provides: “Subsection (1) does not apply if the conspiracy, agreement or arrangement (a) is entered into only by parties each of which is, in respect of every one of the others, an affiliate.” Affiliation, for the purposes of the Act, is a control test: s.2(4) defines control of a corporation as holding, directly or indirectly, securities carrying more than 50% of the votes needed to elect a majority of directors, where those votes are in fact sufficient to elect that majority. A signed share purchase agreement with an unsatisfied financing condition conveys no votes and no directors. The buyer held no shares of the target at all until the lender funded and the transaction closed — so for the entire ten-week interim period, the companies were, on the Act’s own definition, exactly what they had always been: separate, competing businesses.
This is a different provision from the one that governs a no-hire clause between the same two parties. Employment coordination under s.45(1.1) treats non-affiliation as an element of the offence itself — the offence is defined as conduct between employers “not affiliated” with each other. Interim operational control under s.45(1) works the other way: coordination between competitors is presumptively unlawful, and affiliation is the narrow exception that, on its own terms, does not apply until affiliation actually exists. Both routes arrive at the same practical conclusion for a deal still pending closing — there is no lawful basis to act as one company before becoming one — but they get there through different mechanics in the same section.
Once flagged, the interim covenants were rewritten going forward: pricing decisions returned entirely to the target’s own management, with the buyer limited to the consent rights the agreement actually gave it over extraordinary matters; the reassigned delivery routes were unwound back to their pre-signing state until closing; and the branch-manager personnel decisions were left with the target’s existing management until control passed. The buyer’s counsel also documented, contemporaneously, which specific actions during the interim period had crossed from value-preservation into operational coordination, so that if the conduct were ever examined, the record would show the point at which it stopped rather than a pattern that ran unbroken to closing.
Left uncorrected, ten weeks of coordinated pricing and customer allocation between two companies the Act still treated as competitors would have been complete, provable s.45(1) conduct regardless of whether the acquisition ultimately closed — exposure that does not evaporate once the companies do become affiliated, because the offence is measured at the time the conduct occurred, not at the time anyone looks back on it.
The tell was the vocabulary in the buyer’s own emails. “Approving,” not “reviewing.” “Reassigning,” not “recommending.” A standard interim operating covenant gives the buyer consent rights — the target still decides, the buyer can say no to something extraordinary. The moment the buyer’s own language describes it as making the decision rather than being asked about it, the interim period has become premature integration, whatever the purchase agreement says the covenant was supposed to permit.
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