New York’s Proposed Premerger Review Program Would Provide Much-Needed Protection for Consumers
New York State is on the precipice of unleashing a much-needed revolution in antitrust law.
This blog recently covered New York’s proposal to amend the Donnelly Act (New York’s antitrust statute) to adopt a European-style abuse of dominance standard. In this post, we analyze New York’s proposed mandatory premerger review program, which would complement the federal premerger notification program established by the Hart-Scott-Rodino (HSR) Act, which provides the Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ) with information about proposed mergers that exceed certain thresholds.
Much like the HSR Act itself, the details of how New York would conduct premerger review are scant and, if adopted, will need to be fleshed out by subsequent regulation. We anticipate that New York would largely incorporate many of the familiar HSR concepts into any such regulations.
Some details, however, are apparent on the face of the proposed legislation:
- The bill provides for mandatory notification thresholds that fall well-below the HSR thresholds, ensuring that New York will be notified of pending transactions that are never notified to the FTC or DOJ. Specifically, New York would require that parties to mergers or acquisitions of assets or equity must (a) notify the New York Attorney General (NYAG) of the terms of their transaction where (1) the acquiring party will hold, post-closing, assets or voting securities of the acquired party valued in excess of 10% of the current HSR thresholds (currently set at $92 million), and (2) the acquired party has assets or annual net sales in New York valued in excess of 2.5% of the current HSR thresholds (currently set at $368 million). Both thresholds would amount to $9.2 million under 2021 thresholds, which are adjusted annually by the FTC.
- To reduce duplicative costs, parties that are required to notify their transaction to the FTC and DOJ under the HSR rules would be able to comply with New York’s law by simply providing the NYAG with a copy of their HSR filing.
- While New York has mirrored some of the HSR Act’s more important exemptions to mandatory notification (such as exempting acquisitions made in the ordinary course of business), New York has notably omitted others, such as the “investment only” exemption that exempts passive investors from notification requirements so long as their cumulative holdings do not exceed 10% of the voting securities of the target company. New York’s decision not to provide for a passive investment exemption may reflect concerns that institutional investors’ parallel minority shareholdings across a highly concentrated industry can reduce competition, including by facilitating collusion, within that industry.
- Notifying parties would be prohibited from closing their transaction for 60 days following notification. Although this is twice the 30-day HSR waiting period, the FTC’s and DOJ’s recent practice of requiring parties to “pull and refile” their HSR notifications has effectively established a 60-day review period under federal practice for many transactions. Moreover, New York’s forthcoming premerger review regulations may provide for an “early termination” process analogous to what was the FTC’s and DOJ’s practice prior to the COVID pandemic. Accordingly, New York’s 60-day waiting period may end up affecting only those parties whose transaction raise significant antitrust issues.
- Like the HSR Act, New York provides for substantial fines on parties who close their transactions prior to the expiration of the applicable waiting period. Parties who fail to notify reportable transactions or otherwise close their deals prior to the expiration of the waiting period face fines of $10,000 per day. Fines for similar violations of the HSR Act, the statutory fine is $43,792 per day.
New York’s proposed entry into premerger review has received mixed reviews. Critics argue that the burdens on both business and the NYAG’s office will be significant without any material offsetting benefits. Supporters, however, note that decades of lax merger enforcement at the federal level, particularly in reviews of transactions involving new technologies or platforms in nascent markets, justifies the creation of a second layer of premerger review at the state level. Federal enforcers have regularly lauded their agencies’ restraint in “regulating” nascent markets through prospective merger challenges, while at the same time declining to bring enforcement actions to “unscramble the eggs” where consummated transaction have resulted in anticompetitive effects. In our view, New York legislators have correctly identified a serious gap in federal enforcement and propose, consistent with the states’ historic enforcement role, to fill that void.
New York’s prospective entry into premerger review, combined with the adoption of an abuse of dominance standard and relatively low notification thresholds, will conceivably make New York the epicenter for merger enforcement in the United States. Although some commentators have suggested that businesses will cease to do business in New York if such a law were adopted, we consider such opinions to border on frivolous. Businesses have not abandoned the EU Member States, most of which have their own premerger review programs, and many of which have economies that are dwarfed by New York’s. It is simply not credible that businesses will abandon what amounts to the tenth largest economy in the world in response to the adoption of a regulatory program that is commonplace in far smaller economies.
Moreover, there is no reason to believe that the NYAG will fail to coordinate its work with the FTC and DOJ on transactions that undergo in-depth review at the federal level. That said, as New York enforcers would be able to challenge a wider swathe of problematic transactions under the more encompassing abuse of dominance standard, it remains to be seen how parties will be able to satisfactorily resolve potential or actual merger challenges at the federal level if the transaction may yet be blocked in New York courts, including through litigation brought by private parties. Competitors and investors, heretofore largely marginalized by federal antitrust law, would gain a powerful tool in the abuse of dominance standard to challenge mergers in New York courts.
While well-funded private actors may well be the first to file lawsuits if this standard were to be adopted, the NYAG will be well-placed to conduct timely and targeted reviews of problematic transactions that escape appropriate federal scrutiny. We hope that the New York legislature will empower the NYAG with funding commensurate with the enlargement of the office’s responsibilities.
In our view, competition is always preferrable, even across antitrust enforcement agencies, federal or state. New York’s proposed entry into the merger control arena promises to stimulate competition with federal antitrust watchdogs, resulting in higher quality and more robust antitrust enforcement. And that is a big win for consumers everywhere.
Edited by Gary J. Malone