DAVIES
155 Wellington Street West Toronto, ON M5V 3J7 Canada
dwpv.com
Chanakya Sethi T 416.863.5516 csethi@dwpv.com
File 286019
November 13, 2024 BY E-FILING Competition Tribunal Thomas D’Arcy McGee Building 90 Sparks Street, Suite 600 Ottawa, ON K1P 5B4
Attention: Annie Ruhlmann, Deputy Registrar Dear Ms. Ruhlmann: Application for Rescission of Registered Consent Agreement, CT-2016-016, The Commissioner of Competition v. McKesson Canada Corporation and Rexall Pharmacy Group Ltd.
On behalf of McKesson Canada Corporation (“McKesson Canada”) and Rexall Pharmacy Group ULC (formerly Rexall Pharmacy Group Ltd.) (“RPG”), and pursuant to sections 2(1) and 81(1) of the Competition Tribunal Rules 1 and past practice 2 before the Competition Tribunal (“Tribunal”), please accept this letter as an application made pursuant to paragraph 106(1)(b) of the Competition Act 3 for the rescission of the Consent Agreement between McKesson Canada, RPG and the Commissioner of Competition (“Commissioner”), which was registered with the Tribunal on December 14, 2016 (the “Consent Agreement”).
This application is being brought on consent of the parties to the Consent Agreement. Steve Sansom, counsel to the Commissioner, is copied on and has participated in the drafting of this letter. A copy of the Commissioner’s consent to this application is attached at Appendix I of this letter.
McKesson Canada, RPG and the Commissioner entered into the Consent Agreement in connection with RPG’s 2016 acquisition of the pharmacy, medical clinic, and benefits management administration and claims adjudication businesses carried on by subsidiaries of Katz Group Canada Inc., including ClaimSecure Inc. (“ClaimSecure”) (the “2016 Transaction”). As a result of the Commissioner’s determination that the 2016 Transaction would likely result in a substantial lessening or prevention of competition in the wholesale and retail sale of certain pharmacy products and services, including
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SOR/2008-14. See, e.g., CT-2018-011, The Coca-Cola Company (variation of CT-2010-009). Competition Act, R.S.C. 1985, c. C-34, as amended, section 106(1)(b).
DAVIES WARD PHILLIPS & VINEBERG llp
DAVI ES
prescription and over-the-counter pharmaceuticals, McKesson Canada agreed to sell RPG retail stores in 26 markets in Alberta, British Columbia, the Northwest Territories, Ontario and Saskatchewan. Those divestitures were completed in 2017 with the Commissioner’s approval.
The Consent Agreement also established a series of firewalls restricting the transmission of commercially sensitive information among McKesson Canada’s wholesale business, RPG’s retail business and the ClaimSecure healthcare claims adjudication business in order to preserve competition amongst rivals at the retail level.
McKesson Canada completed the sale of all of the shares of ClaimSecure to The Canada Life Assurance Company on September 1, 2021. The Commissioner issued a no action letter (“NAL”) with respect to that transaction on August 27, 2021. In connection with that transaction, ClaimSecure ceased to be subject to the obligations of the Respondents as such term is defined in the Consent Agreement upon completion of the transaction. The remaining effective firewalls in the Consent Agreement are between the Wholesale Business and the Retail Business, as such terms are defined in the Consent Agreement.
Pursuant to a Master Purchase Agreement dated September 4, 2024, an affiliate of McKesson Canada proposes to sell RPG – and therefore the entire Retail Business – to entities controlled by funds managed by Birch Hill Equity Partners Management Inc. (“Birch Hill”) (the “Proposed Transaction”). The Commissioner issued a NAL in respect of the Proposed Transaction on November 12, 2024.
Upon completion of the Proposed Transaction, no entity carrying on any Retail Business will be affiliated with McKesson Canada. Structurally, McKesson Canada and the entities carrying on the Retail Business will be restored to the status existing prior to the 2016 Transaction – i.e., arms length parties in which McKesson Canada and its affiliates own no interest in the entities carrying on the Retail Business, and vice versa.
As indicated in the Commissioner's position statement on the 2016 transaction 4 , the foundational basis for the Consent Agreement is the Commissioner’s concern arising from the 2016 Transaction that McKesson Canada’s affiliation with the Retail Business would incentivize it to (i) direct customers to the Retail Business rather than to other wholesale customers, as McKesson Canada and its affiliates benefited from both wholesale sales to and retail sales by the Retail Business and (ii) seek a coordinated outcome at retail. The proposed divestiture of the Retail Business will eliminate these incentives since McKesson Canada and its affiliates will no longer control or receive the retail margin earned by the Retail Business. As of the closing of the Proposed Transaction, the basis for the Consent Agreement — and indeed, its original raison d'être — will no longer exist. McKesson Canada and RPG respectfully request that the Tribunal issue an order, effective immediately upon closing of the Proposed Transaction, granting the parties’ application under section 106(1)(b) of the Competition Act
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See Competition Bureau, Acquisition of Katz Group’s healthcare by McKesson, available here: https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/position-statements/acquisition-katz-groups-healthcare-mckesson.
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and rescinding the Consent Agreement. A draft form of Tribunal order is attached for your consideration at Appendix II of this letter.
McKesson and Birch Hill propose to close the Proposed Transaction on December 30, 2024. Accordingly, we respectfully request that the rescission order be issued before the Tribunal commences its seasonal recess on December 20, 2024. We expect that this application can be addressed on the basis of the written record, without a hearing.
We would be pleased to provide any further information that the Tribunal may require in considering this application.
Yours very truly,
Chanakya A. Sethi
cc
Jim Dinning Davies Ward Phillips & Vineberg LLP
Steve Sansom Competition Bureau Legal Services
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DAVIES
Appendix I Consent of the Commissioner of Competition, the Applicant to the Consent Agreement registered his counsel, consents and agrees to Consent Agreement registered in respect of matter set out in Appendix II hereto.
The Commissioner matter CT-2016-016, through rescinding the on the terms
DATED
at Gatineau, Quebec
this
IS01
day
of November, 2024.
in respect of Competition Tribunal on December 14, 2016
an order by the CT-2016-016
Counsel for
Steve Sansom Department of Justice Canada Competition Bureau Legal Services Place du Portage, Phase I 22nd Floor, 50 Victoria Street Gatineau, QC K1A 0C9 Email: steve.sansom@cb-bc.gc.ca
the
Commissioner
of
Competition
Competition Tribunal
Appendix II
Tribunal de la concurrence
Citation: The Commissioner of Competition v McKesson Canada Corporation and Rexall Pharmacy Group Ltd.
File No: CT-2016-016 Registry Document No:
IN THE MATTER OF a consent agreement registered by the Competition Tribunal on December 14, 2016, in Tribunal File No CT-2016-016, with respect to the acquisition by Rexall Pharmacy Group Ltd., an affiliate of McKesson Canada Corporation, of the pharmacy, medical clinic, and benefits management administration and claims adjudication businesses carried on by Katz Group Canada Inc. and its affiliates;
AND IN THE MATTER OF an application, on consent, pursuant to paragraph 106(1)(b) of the Competition Act, RSC 1985, c C-34 to rescind the Consent Agreement of December 14, 2016.
BETWEEN: McKesson Canada Corporation and Rexall Pharmacy Group Ltd. (Applicants)
and The Commissioner of Competition (Respondent)
Decided on the basis of the written record Members: Date of Order: Order signed by:
ORDER ALLOWING AN APPLICATION UNDER PARAGRAPH 106(1)(b) OF THE COMPETITION ACT TO RESCIND A CONSENT AGREEMENT
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FURTHER to the Consent Agreement filed on December 14, 2016 by the Commissioner of Competition (“Commissioner”) in relation to the acquisition by Rexall Pharmacy Group Ltd.
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(now Rexall Pharmacy Group ULC) (“RPG”), an affiliate of McKesson Canada Corporation (“McKesson Canada”), of the pharmacy, medical clinic, and benefits management administration and claims adjudication businesses carried on by Katz Group Canada Inc. and its affiliates, including ClaimSecure Inc. (“ClaimSecure”) (the “Consent Agreement”);
AND WHEREAS the Divestiture (as defined in the Consent Agreement) was completed on August 22, 2017;
AND WHEREAS RPG completed the sale of all of the shares of ClaimSecure to The Canada Life Assurance Company on September 1, 2021;
AND WHEREAS pursuant to a Master Purchase Agreement dated September 4, 2024, and a Share Purchase Agreement dated September 4, 2024, Rexall Holdings Limited Partnership proposes sell RPG to entities controlled by funds managed by Birch Hill Equity Partners Management Inc. (the “Proposed Transaction”);
AND WHEREAS on November 12, 2024 the Commissioner issued a no-action letter indicating that he does not , at this time, intend to make an application under section 92 of the Competition Act in respect of the Proposed Transaction;
AND WHEREAS upon completion of the Proposed Transaction McKesson Canada and its affiliates will no longer have any ownership interest in the pharmacy retail business carried on by RPG and its subsidiaries;
AND WHEREAS Claimsecure is, and upon completion of the Proposed Transaction RPG will be, operated by independent third-party owners, thereby eliminating the Commissioner’s competitive concerns that gave rise to the Consent Agreement;
AND FURTHER to an application made pursuant to paragraph 106(1)(b) of the Competition Act, RSC 1985, c C-34, by McKesson Canada and RPG, with the consent and agreement of the Commissioner, to rescind the Consent Agreement effective upon closing of the Proposed Transaction (the “Application”);
AND UPON considering the Application and the reasons set out therein for the rescission of the Consent Agreement;
AND UPON being satisfied with the reasons and information provided;
AND UPON noting that the rescission of the Consent Agreement is on consent, but is nevertheless a discretionary matter for the Tribunal;
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THE TRIBUNAL ORDERS THAT:
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The Consent Agreement dated December 14, 2016 in Tribunal file CT-2016-106, is hereby rescinded effective upon closing of the Proposed Transaction, provided the Proposed Transaction is completed before November 12, 2025.
There shall be no costs on this Application.
DATED at Ottawa, this day of . SIGNED on behalf of the Tribunal by:
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COUNSEL OF RECORD For the applicant, McKesson Canada Corporation Chanakya Sethi Jim Dinning
For the respondent, The Commissioner of Competition Steve Sansom
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