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As far as corporate mergers go, it wasn't exactly a hot play: a modest, $175-million deal that united two stodgy players in a decidedly mundane industry, propane.

But the merger three years ago of Superior Propane Inc. and crosstown Calgary rival ICG Propane Inc. -- against bitter objections by the federal government's competition watchdog -- has had an explosive result. It prompted the federal government last week to reverse what many saw as an outmoded competition stance by opening the door to high-synergy mergers between major industry competitors.

In a bombshell announcement on Thursday, Competition Commissioner Sheridan Scott told a gathering of competition lawyers that she would give due consideration to so-called efficiency defences in deciding whether to clear large-scale corporate marriages, even in cases that would lead to reduced competition.

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"The e-mails, the BlackBerrys were buzzing," Brian Facey, a competition partner at Blake Cassels & Graydon LLP, said of Ms. Scott's announcement, delivered during a lunchtime speech to the Canadian Bar Association's annual fall conference on competition law in Gatineau, Que. "This is a very welcome development. It sets things right."

Efficiency defences, enshrined in law for 20 years but only ever employed in the landmark Superior Propane case, enable suitors to argue that gains from measures such as integrating two distribution networks or management structures would offset the cost of reduced competition, producing a net benefit to the overall economy.

Although arguments based on corporate efficiencies have technically been permitted under the Competition Act since 1986, corporations have been loath to use them for fear of getting tied up in protracted hearings, not only before the Competition Bureau but also in front of a specialized court known as the Competition Tribunal. Hearings before that tribunal tend to drag on for a year or more, effectively acting as a merger deterrent because shareholders hate uncertainty and generally are not prepared to wait more than a few months for a payout.

Under previous competition commissioner Konrad von Finckenstein, the bureau gained a reputation for its hostile stance against efficiency claims, openly declaring it would defer all such claims to the Competition Tribunal and even supporting an amendment to the law that would have curtailed efficiency defences.

After more than four years of litigation, the Federal Court of Appeal in 2003 finally approved Superior's takeover of ICG, giving the merged entity a 70-per-cent share of the Canadian propane market. Superior, represented by Mr. Facey and fellow Blakes partner Neil Finkelstein, succeeded in persuading the court that efficiencies generated by the union, calculated to be about $30-million annually, dwarfed the projected annual cost to consumers of $11-million from increased prices.

That case eventually led Ottawa to set up an advisory panel on the issue, which declared that efficiency defences were justifiable in cases where mergers would result in a net benefit to the economy.

Mr. Facey says the new directive announced by Ms. Scott last week indicates the bureau is "not as hostile towards efficiencies as it once was," and it would appear to open the door to the possibility of major mergers in the telecommunications and banking sectors.

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"We would urge your clients to bring those submissions to us early in as substantiated a form as possible and not to be deterred by an unfounded notion that to do so is somehow an admission of anti-competitive concern," Ms. Scott said in her keynote address.

Ms. Scott also surprised the audience by declaring that she would not be seeking to repeal or amend the efficiencies defence from the Competition Act.

"The amendment game is over," said Subrata Bhattacharjee, a competition partner with Heenan Blaikie LLP. "Merging parties now know that the efficiencies defence will continue to occupy its present place in the act."

Lawyers say the reversal, though coming from a Liberal appointee such as Ms. Scott, is consistent with the current Conservative government's pronouncements on removing barriers to productivity.

Motivations aside, Ms. Scott's announcement is music to the competition bar's ears. For years, the consensus among practitioners has been that merger restrictions in Canada generally should be relaxed to permit larger and more efficient domestic players.

"This is particularly important in a small and open economy like Canada's, where we don't necessarily have the depth of markets they have in the European Union and the United States to support a large number of players," says Paul Crampton, a competition lawyer with Osler Hoskin & Harcourt LLP.

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Although Superior Propane has so far been the only party to prevail in Canada on the basis of efficiencies arguments, competition lawyers say a relaxed enforcement policy could unleash a slew of new claims. Mr. Facey says recent mergers such those between Chapters and Indigo, and Cineplex and Famous Players consciously steered clear of efficiencies arguments to avoid getting referred to the Competition Tribunal. Instead, they accepted costly remedies, such as asset divestitures, to win approval.

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