Competition Bureau statement regarding WESCO Distribution Inc.’s acquisition of EECOL Electric Corp.

Position statement

OTTAWA, December 7, 2012 — This statement summarizes the approach taken by the Competition Bureau in its review of WESCO Distribution Inc.'s (WESCO) proposed acquisition of EECOL Electric Corp. (EECOL).

On December 3, 2012 the Bureau issued a No Action Letter (NAL) to WESCO and EECOL indicating that the Commissioner of Competition does not, at this time, intend to make an application under section 92 of the Competition Act in respect of the proposed acquisition.Footnote 1 The Bureau focussed its review on the competitive effects of the proposed acquisition on the distribution of electrical components in Canada.

The Bureau found that WESCO and EECOL were significant competitors in parts of Western Canada and that they held substantial market share in many of these markets; however, the Bureau concluded that mitigating factors existed, that would likely prevent a potential exercise of market power by WESCO.

Background:

On October 17, 2012, WESCO and EECOL entered into an agreement whereby WESCO would acquire all of the issued and outstanding shares of EECOL. Both WESCO and EECOL are full-line distributors of electrical components to, among others, industrial, utility, commercial, and construction customers.

The Bureau identified two distinct product segments within the general category of electrical components. The first is comprised of low voltage electrical components, which are used in general commercial and industrial settings. The second is comprised of electrical components with high voltage applications, particularly for electrical transmission and distribution. For this reason, the primary customers in the high voltage segment are electrical utilities. It was also considered an important factor by customers in both segments that distributors have access to a full-line of products.

With respect to the geographic components of the market, the Bureau found that, while WESCO was present in nine provinces throughout Canada, EECOL was mainly present in Western Canada. In the low voltage segment, WESCO and EECOL compete in 17 local markets in Western Canada. In the high voltage segment, the geographic extent of the market was broader and defined as provincial, with the parties having overlapping operations in British Columbia, Alberta, Saskatchewan, and Manitoba.

In the low voltage segment, the Bureau found that there were at least two effective competitors other than WESCO and EECOL that would remain post-merger in each relevant geographic area. Although barriers to entry were considered to be relatively high by certain industry participants, the Bureau recognized that the key manufacturers had significant bargaining power with distributors, as distributors relied on arrangements with these manufacturers in order to compete. Manufacturers also had the ability to switch distributors to discipline a potential price increase.

The Bureau also closely examined the likely impact of the acquisition on the high voltage segment. WESCO is a leading competitor in this segment in Western Canada, through its divisions Trydor Industries (Canada) and Brews Supply. EECOL was also perceived as a significant competitor in this segment, having expanded its presence in recent years.

The Bureau found that the high voltage segment in Western Canada was highly concentrated with HD Supply Power Solutions, being the most significant remaining competitor. Similarly, barriers to entry in the high voltage segment were considered relatively high, with incumbents holding exclusive distribution rights to key brands. However, the Bureau concluded that manufacturers would have the incentive to switch distributors or sponsor new entry in the event that distributors materially raised prices to customers. The position of large utility customers and the nature of the tendering process were also considered in the Bureau's decision.

The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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