BUSINESS/ECONOMY

Unicorp fuels a fight

TOM FENNELL January 5 1987
BUSINESS/ECONOMY

Unicorp fuels a fight

TOM FENNELL January 5 1987

Unicorp fuels a fight

BUSINESS/ECONOMY

Historically, the federal Combines Investigation Act, passed in 1910, has proven to be highly ineffective legislation. In nearly a dozen attempts, lawyers representing the federal government never once managed to have a takeover or merger disallowed under the law. But in late November a new group of regulators, empowered under the new Competition Act of June 19, startled many members of corporate Canada. In the first case that it reviewed, it outlawed the $66-million sale of Unicorp Canada Corp.’s Calgary-based Palm Dairies Ltd. to a consortium of four Western Canadian dairy co-operatives and existing Palm management. The regulators’ landmark message: the concentration of industrial power, even in the name of greater efficiency, will not automatically be accepted. Said Unicorp president James Leech, the first executive stung by the new law: “We thought we had a deal with a government agency. Now we are confused as to how to proceed.”

The Competition Act set up two new federal agencies: a bureau of competition policy, operating under Consumer and Corporate Affairs, and a competition tribunal. Appointed by the cabinet, the tribunal is a 12-member board of laymen and federal court judges that rules on recommendations sent to it by policy director Calvin Goldman. The tribunal’s decision led to an appeal, launched on Dec. 5, from the policy bureau, which fueled a power struggle between the two branches. Goldman said that his branch had hammered out a compromise in the Palm case that would have protected competition by diversifying ownership control, and he added that it should have been passed by the tribunal. But the tribunal ruled against that plan, stating that consumers would only be protected if Palm were sold to an independent third firm.

In response, Goldman referred the case to the Federal Court of Appeal. Its interpretation of the Palm case, due as early as next week, will determine which body will dominate future assessments of corporate concentration in Canada. Said Goldman: “By taking the matter to court, we are seeking direction and interpretation.” At the centre of the dispute is Unicorp’s Leech. He said that he spent five months working on the purchase and added that he thought he and Goldman’s bureau had come to an acceptable ownership compromise. Their agreement would have reduced the dairy co-operatives’ control of Palm by giving the dairy’s directors an ownership stake. That satisfied Goldman, but not the tribunal. Said Leech: “It is all very nice for the tribunal and the director to have a power struggle, but it is frustrating to be the guinea pig.” The court battle was an inauspicious debut for Goldman, 36. When he became director of the bureau last April, Consumer and Corporate Affairs expected him to police its new Competition Act. And Goldman did act quickly to prevent the Palm sale last spring when Unicorp first proposed to sell 100 per cent of the firm to the co-operatives. Unicorp officers had argued that consumers would be protected because milk prices were set by independent provincial marketing boards and not the milk producers. But Goldman claimed that if the sale went ahead as proposed, it would result in the four co-operatives dominating the fresh-milk market in Western Canada, including 95 per cent of the industry in Saskatchewan, 80 per cent in Alberta and 57 per cent in British Columbia.

The new Competition Act, crafted by thenconsumer and corporate affairs minister Michel Coté and Lawson Hunter, Goldman’s predecessor as director of the combines department, gives the policy director sweeping powers to reach compromise agreements with merging firms. The agreements streamline the system and avoid lengthy proceedings before the tribunal. But now analysts see long-term implications in Goldman’s initial setback. William Stanbury, a University of British Columbia commerce professor specializing in combines legislation, says that in effect the tribunal is warning that it will not simply rubber-stamp recommendations from the policy group and is digging in. Indeed, the tribunal made it clear in its decision that it wants competition given more priority than bringing greater efficiency to the industry through consolidation.

Still, Stanbury blames the politicians who drafted the Competition Act, not Goldman. If they had clearly outlined what the tribunal’s and the policy director’s responsibilities were, the power struggle might have been averted, he says. The guidelines are so confusing that a lawyer involved in combines procedures said that depending on how the court rules, Goldman might be able to ignore the tribunal altogether. In the same way, businessmen, sensing Goldman’s weak position, might choose to go around him and appeal to the tribunal.

But former combines director Lawson Hunter predicted that once the Appeal Court sets guidelines clearly outlining the policy bureau’s jurisdiction, Goldman will be positioned to use the provisions of the tough new act. Hunter said that if Goldman does indeed have the power to make merger arrangements such as the one reached in the Palm case, businessmen will avoid protracted litigation by working with the policy sector. Said Hunter: “Firms just do not want to get involved in costly litigation that leaves things uncertain for a considerable period of time.”

Still, even if Goldman ultimately wins his case before the Appeal Court, Hunter said, the tribunal will continue to make its presence felt. Declared Hunter: “The Palm case tells us that Goldman is not out there operating by himself, that there is a tribunal and the tribunal is going to play an important and active role in watching what he’s doing.”

However, Goldman’s fight with the tribunal is complicated by severe financial restrictions. Money allocated under the old Combines Act was not sufficient to fund Policy’s expanded responsibilities. But Goldman said that he does not expect the shortfall to hinder his police work. “As far as I am concerned, I have the full support of the government to ensure this new legislation is implemented,” he said. Still, until the courts interpret the new act, companies such as Unicorp will remain trapped between Goldman’s policy department and the tribunal.

-TOM FENNELL with BRUCE WALLACE in Montreal, MADELAINE DROHAN in Hull and JOHN HOWSE in Calgary

TOM FENNELL

BRUCE WALLACE

MADELAINE DROHAN

JOHN HOWSE