The American Bar Association is hosting a panel discussion on New York’s 21st Century Antitrust Act and the pre-merger regime it could create moderated by Austin A.B. Ownbey on March 4. For more information and to register please click here.
The New York Attorney General would like to review your next transaction before you close.
The 21st Century Antitrust Act has primarily been described as an effort to strengthen the anti-monopoly provisions of Section 340 of New York’s General Business Law. However, tucked inside the legislation are some little talked about provisions that could create a new premerger notification requirement unlike anything that currently exists in New York and broader than any requirement in any other state.
If the 21st Century Antitrust Act passes, every merger or acquisition that involves an entity with assets or sales in New York will need to be analyzed not just for a potential federal filing pursuant to the Hart‐Scott‐Rodino Antitrust Improvements Act of 1976 (HSR Act), but also for a new state-level filing. And, since the threshold in the proposed legislation is much lower, a lot of transactions that are exempt from the HSR Act will be required to file a notification under the new law.
In particular, the legislation establishes the following pre-merger requirements:
Any person acquiring, directly or indirectly, any voting securities or assets of any other person, shall file notification with the attorney general if:
- as a result of such acquisition, the acquiring person would hold an aggregate total amount of the voting securities and assets of the acquired person in excess of ten per centum of the current thresholds specified by the HSR Act (as of February 23, this HSR Act threshold will be $101 million which would mean New York’s threshold would be $10.1 million); and
- the acquiring or acquired person has assets or annual net sales within the state of New York in excess of two and one-half per centum of the current thresholds specified by the HSR Act (as of February 23, this HSR Act threshold will be $403.9 million which would mean New York’s threshold would be $10.0975 million).
The notification required by the 21st Century Antitrust Act must be filed at least sixty calendar days before the closing of the transaction. However, if the transaction is subject to an HSR Act filing requirement, the parties can comply with the requirements by providing the New York Attorney General with a copy of the HSR, at the same time that they file the HSR with the federal agencies. As a result, transactions that are NOT subject to an HSR Act filing obligation would have to wait sixty days before closing, while transactions that are subject to the HSR Act would only have to wait thirty days.
The proposed legislation does, however, include several exemptions similar to exceptions in the HSR Act. For example, the following are exempt:
- acquisitions of goods or realty transferred in the ordinary course of business;
- acquisitions of bonds, mortgages, deeds of trust, or other obligations which are not voting securities; and
- transfers to or from a federal agency or a state or political subdivision.
In addition, similar to the authority granted to the federal enforcers under the HSR Act, the New York Attorney General would be empowered by the proposed legislation to:
- define the terms used in the Act;
- exempt, from the requirements of the Act, classes of persons, acquisitions, transfers, or transactions which are not likely to cause harm to competition; and
- adopt, promulgate, amend, and rescind other rules and regulations to carry out the purposes of the Act.
Also, just like the HSR Act, the proposed legislation does protect the confidentiality of the filing by exempting any information or documentary material filed with the Attorney General from disclosure, except as may be relevant to any administrative or judicial action or proceeding.
Finally, the penalty for the failure to comply with the requirements of the notification requirement will be set at $10,000 per day, which is substantially less than the current failure to file an HSR at $46,517, but failure to file could still result in substantial fines.
The legislation was first introduced last year and was passed by the New York State Senate during the last week of its session, but failed to make any progress in the State Assembly. It was reintroduced at the beginning of this year and seems to be moving quickly towards being passed by the State Senate again. The legislation already has several sponsors in the State Assembly and it appears that momentum is growing towards passage this year.
If the legislation becomes law, parties to transactions that involve any assets or sales in New York, on either the buy-side or the sell-side, will need to carefully analyze the transactions under the new state-law requirements in addition to complying with the HSR Act. Transactions that might be exempt from the HSR Act, especially because they are far too small, could be subject to the new filing requirements and the fines for failing to comply will add up quickly.