California enacted AB 853, which requires merging parties in retail grocery and pharmacy-related transactions (presumably with a nexus to California) that meet certain thresholds to notify the California attorney general and observe a 180-day waiting period prior to closing.
On October 8, 2023, California Governor Gavin Newsom signed AB 853, which requires parties to submit a filing to the California attorney general for any acquisition of voting securities or assets of any retail grocery [1] or pharmacy [2] firm that generates a Hart-Scott-Rodino Act (HSR Act) filing under federal law or if an acquisition is for more than 20 “firms” regardless of the value of such a transaction.
There is a 180-day waiting period that must be observed prior to closing. Currently, there are no exemptions based on transaction value, asset or revenue locality/thresholds, or materiality. The statute empowers the attorney general to enact such exemptions and other regulations to carry out its mandate.
Certain aspects of the law are unclear, including the definition of “20 firms.” The definition of “firm” includes “proprietorship, joint venture, corporate officer or executive, that has one or more businesses or establishments located within the state,” which presumably means that an acquisition of 20 or more stores from a single seller would satisfy this requirement.
Additionally, it is unclear what effect AB 853 will have on transactions pending prior to October 8. It is also unclear whether the full 180-day waiting period must be observed for every applicable transaction or whether the government can grant early clearance.
The new California grocery and pharmacy law is the latest state pre-closing suspensory law for transactions involving certain industries. For instance, Oregon enacted HB 2362 [3] in 2021, granting the Oregon Health Authority (OHA) the ability to review any transaction that involves “healthcare entities” (e.g., physician practice groups); it can capture transactions where one party has as little as $10 million in revenue. [4] The OHA has 30 days for an initial review and a full 180 days if further review is deemed “necessary”—and these waiting periods (whichever is applicable) must be observed prior to closing.
Morgan Lewis will continue to monitor state enforcement efforts and will join clients in closely assessing their impacts on transactions.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:
[1] These include supermarkets and other grocery retailers under NAICS code 44511 and warehouse clubs and supercenters under NAICS code 455211.
[2] These include pharmacies and drug retailers under the NAICS code 45611.
[3] See Or. Rev. Stat. §§ 415.500 et seq.
[4] The statute requires one party to have $10 million in revenue on average over the previous three years (or projected for new starts) and the other party to have at least $25 million in revenue on average over the previous three years. The statute does not require local Oregon revenue. In fact, a transaction meeting the above conditions with an in-state entity and an out-of-state entity will still be subject to the statute if the transaction will result in increases in the price of healthcare or limit access to healthcare services in the state.