On April 16, 2012, Canada's Competition Bureau issued a statement outlining the analysis it had undertaken of Cardinal Health's then-proposed acquisition of Futuremed to conclude that, despite some concerns expressed by certain customers, the transaction was unlikely to result in a substantial prevention or lessening of competition in any relevant Canadian market. Stikeman Elliott acted on behalf of Cardinal Health.

Cardinal Health and Futuremed were both distributors of a broad range of medical supplies and surgical equipment to various healthcare facilities in Canada, supplying products from hundreds of global manufacturers. The Bureau noted that prices in the healthcare products distribution industry are typically set through a tendering process between manufacturers and customers, whereby manufacturers sell direct to the individual healthcare facility or, alternatively, to a buying group acting for several healthcare facilities. As such, authorized distributors of manufacturers, such as Cardinal Health and Futuremed, do not compete on price, but rather compete through the use of distribution fee rebates, quality of service and technical expertise offered to customers.

In its analysis, the Bureau focused on the Province of Quebec, where over 90% of products are purchased through this tendering process (a requirement dictated by provincial legislation), and where the Bureau stated there is currently only one smaller competitor with the same type of "full-line" product offering as the parties. According to the Bureau, certain customers expressed concern that the transaction could result in a loss of distribution rebates, product variety and quality of service. Larger customers, in particular, expressed concern that they would face high transaction costs of dealing with numerous suppliers if forced to switch to other partial-line distributors or to direct supply by manufacturers. Customers also raised concerns that service quality would be affected if they had to begin to rely on distributors without local warehouse facilities or service personnel.

Despite such concerns, the Bureau found that the barriers to expansion by full-line distributors, e.g., from other provinces, were likely surmountable. The Bureau highlighted several factors that drove its conclusion:

  • Full-line distributors already distribute a broad range of products, and are well-positioned to expand their operations;
  • A sufficient proportion of the parties' distribution agreements with manufacturers will be contestable in the near future, creating opportunities for new and existing competitors;
  • The sunk costs in the healthcare distribution industry are not substantial;
  • A sizeable customer base can be developed with a relatively limited number of trained or experienced local sales representatives, which the parties argued is readily available.

Based on these factors, the Bureau concluded that expansion from new or existing competitors from the relevant or adjacent markets was likely to occur, and, as such, would likely constrain an exercise of market power by the merged entity. The transaction closed in early March.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.