States Want in on the Merger Review Fun

WHAT HAPPENED

While they have long taken a back seat to federal merger reviews, US states are becoming increasingly involved in merger reviews, including potentially requiring premerger notifications on a broad scale. On July 24, 2024, the Uniform Law Commission adopted its Uniform Antitrust Pre-Merger Notification Act (Model Act) as model legislation for states to use to implement premerger filing regimes.

• The Act functions as a template for states to adopt their own premerger notification legislation and provides uniform suggested guidance to states that are considering their own premerger notification regimes.
• The Model Act requires parallel filing of the Hart-Scott-Rodino (HSR) form in a state when:
  • The filing person has its principal place of business in the state; or
  • The person “directly or indirectly had annual net sales in [the] state . . . of at least 20 percent” of the threshold mandated under the HSR Act. §3(a)(1)-(2). Under the current HSR thresholds, that means sales of approximately $24 million in a state would satisfy the state-level filing requirement.
• The Model Act also provides for automatic confidential treatment of materials submitted to the state.
  • Additionally, the attorneys general may communicate with the federal agencies about filing materials.
  • This can avoid the current practice of having to negotiate individual confidentiality agreements with any state interested in reviewing a transaction.
• The Model Act does not impose any waiting or suspension period for notified transactions.
• This continues a trend of government agencies obtaining more notice of M&A transactions. At the end of last year, Congress inserted Section 857 into the National Defense Authorization Act, which requires parties to provide their HSR materials to the US Department of Defense (DoD) for any proposed merger or acquisition that will require DoD review.

BACKGROUND

State attorneys general have broad investigatory and enforcement powers with respect to transactions implicating local competition concerns. States generally have the authority to issue investigative subpoenas, compelling production of documents and information to parties who merely sell products in a state without any further physical connection to the state.

• Typically, states focus their efforts on transactions that have a particular impact on the state’s consumers or an industry important to the state’s economy.
  • For example, transactions involving hospitals or retail locations are traditionally more likely to draw the attention of a state’s attorney general than transactions involving national markets or consumer goods.
• However, state enforcers have increasingly initiated their own efforts to challenge transactions.
  • This trend is illustrated by the Colorado attorney general’s lawsuit that seeks to block the Kroger-Albertsons merger.
    • Colorado is seeking a nationwide injunction and not merely an injunction on the acquisition in the state, raising a novel question with potentially significant impact on antitrust enforcement by the states.
    • Colorado is proceeding independently of the Federal Trade Commission’s (FTC) challenge to the transaction.
• In the past few years, several states have enacted legislation to require notice and reporting of some transactions and imposing waiting periods to allow for the state’s review.
  • Many states have enacted statutes requiring filing for healthcare transactions, which often have a very localized nexus.
    • McDermott tracks these health-specific statutes here.
  • Other states have been moving to broader filing obligations:
    • For instance, New York’s proposed Senate Bill S6748B is very broad. It would require any person conducting business in the state to provide a copy of its HSR filing to the attorney general at the same time the filing is submitted to the FTC and the US Department of Justice.
    • This January, California began reviewing mergers and acquisitions by healthcare entities in the state pursuant to its 2022 Healthcare Care Quality and Affordability Act. Healthcare entities must file state-level merger notification forms in parallel with any required HSR filings, and transactions involving an out-of-state entity may also be captured. Similar requirements have been imposed for retail grocery and pharmacy transactions.

WHAT THIS MEANS FOR COMPANIES

• Even though only few states have enacted or proposed to enact their state-specific merger notification regimes, many others may seek to adopt the Uniform Antitrust Pre-Merger Notification Act.
• If states adopt the legislation, companies contemplating transactions will need to track their sales generated in each state to properly assess whether notification to the state attorneys general will be required.
  • Many companies collect information annually to have their HSR materials “on the shelf,” and this could add yet another item to that process.
• Companies should seek counsel to evaluate any relevant competitive impacts that implicate local markets. In particular, identifying the relevant local markets is an essential preliminary assessment, as state enforcers typically have particular concerns regarding localized geographic markets and their competitive landscapes.