State Attorneys General and Merger Review: The Rising Second Front

State attorneys general have always had antitrust authority in their jurisdictions. What has changed in the last several years is the willingness - and the operational capacity - of state AG offices to use that authority independently of federal action. Several state AG offices have built substantive antitrust enforcement teams; multi-state coalitions have brought independent challenges to transactions that the federal agencies cleared; and individual state AGs have, in some cases, conditioned consent on remedies the federal agencies did not require.

For deal teams, the practical implication is that the antitrust workstream needs to map state-level exposure alongside federal exposure. The mapping is not complicated, but it is increasingly necessary. The questions are: which state markets are meaningfully affected by the transaction? Which state AG offices have demonstrated active antitrust enforcement programs? Are there particular state AGs who have engaged in adjacent matters in the recent past?

The state AG offices most active in independent antitrust enforcement in recent years include several large states with established competition divisions and a handful of smaller states whose AGs have made antitrust a priority. Multi-state coalitions, organized through the National Association of Attorneys General, have provided a coordination mechanism that makes joint action more feasible than it once was. The result is that a deal that draws no federal challenge can still face a substantive state-level inquiry - or, in a small number of cases, a state-led litigation challenge.

The substantive theories advanced by state AG offices have generally tracked the federal Merger Guidelines, with two areas of particular state-level interest: healthcare consolidation (where state AGs have been active for two decades) and labor market effects (where state interest has grown in step with the Guidelines' attention to monopsony theory). State enforcement in healthcare merger review, in particular, is sometimes more searching than federal review, with state-level remedies (continued service commitments, pricing limitations, governance commitments) that federal remedies typically do not include.

The procedural posture of state AG involvement varies. In some matters, the state AG joins a federal challenge as a co-plaintiff. In others, the state AG conducts an independent review that runs parallel to the federal process and may produce a separate consent decree or a separate challenge. In a small but consequential category of matters, the state AG acts after the federal process has concluded, either by challenging a transaction the federal agencies cleared or by seeking remedies the federal agencies did not require.

The deal-planning implications are concrete. The antitrust narrative the parties present at the federal level should be drafted with awareness that state AG offices may receive the same or similar materials and may evaluate them under state-specific standards. The diligence record on state-level competitive effects - particularly in healthcare, retail, and certain consumer-facing categories - should be developed with the same rigor as the federal analysis. And the deal protection package should account for the possibility of state-level challenge, including in the financing, the closing conditions, and the post-signing covenant structure.

Coordination among state AGs has improved meaningfully in the last several years. Multi-state inquiries are now typically organized through a lead state, with coordinated document requests, joint interview practice, and coordinated negotiating positions on remedies. The implication is that a substantive concern raised by one state AG office often matures into a multi-state position, and the parties' response should be prepared with that trajectory in mind.

Our practical guidance is straightforward. Map the state-level exposure at term-sheet stage. Engage with state AG offices proactively where the substantive analysis suggests they will be interested. Treat state-level review as a parallel workstream with its own timetable, its own remedies architecture, and its own risk profile. The federal review remains the longest pole in most matters; the state review is increasingly the second pole, and ignoring it is no longer a defensible default.

What we are watching

We will return to this topic across the coming quarter. If you are actively negotiating a transaction where these issues are live, we'd welcome a confidential conversation.

Three takeaways

• The market is settling, but the diligence bar is rising.
• Preparation, not posture, is the source of speed.
• The right structure can move price more than another round of negotiation.