Court rules Cosette Pharmaceuticals can't terminate Mayne Pharma deal
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More news: The Supreme Court of NSW dismissed Cosette Pharmaceutical's claims in full on Wednesday, stating that the reluctant suitor waived its right to terminate its acquisition of Mayne Pharma.
Justice Ashley Black said in his judgment that Cosette had affirmed it would not terminate the deal when it entered into an amended scheme of implementation deed (SID) on 1 April, entered a Deed Poll on 9 May, and participated at the first court hearing, to enable a Mayne shareholder vote, on 15 May.
He also found that “aspects” of Mayne’s Q3 FY25 sales performance “constituted an adverse change” but the impact on maintainable EBITDA fell short of the $10.76 million threshold for the material adverse change exit clause defined in the SID.
Cosette was also unable to establish its misleading and deceptive conduct claim. The reluctant suitor alleged that data indicating a decline in Mayne’s EBITDA during Q3 FY25 was withheld from Mayne.
Black noted that data indicating a decline in EBITDA for January 2025 was accessed by Cosette advisers as well as employees of Cosette's private equity owner Avista Healthcare Partners, but that senior executives had not been made aware of its existence.
He also noted that consulting firm McKinsey had provided Cosette with forecast product sales for Mayne that “adopted a more conservative view than either Cosette or Mayne”.
The deal is still subject to Foreign Investment Review Board approval, which was the saw an extraordinary intervention from South Australian Premier Peter Malinauskas earlier in the year.
What they said: Alexander Whitman, an investment analyst with Mayne shareholder TGI Holdings told Capital Brief that Cosette’s purported plan to close Mayne’s Adelaide manufacturing plant, which was communicated to the Foreign Investment Review Board, should also be questioned now that its termination attempt has failed.
“We feel the SA plant has meaningful stand-alone asset value, so the suggestion Cosette would close it is completely absurd,” Whitman said.
He said that, in TGI's view, the operation has an estimated value of about $100 million and that "recent capital investment at the bottling and pilling facilities would lead to much greater efficiencies and higher earnings and profitability in the years ahead."
Cosette Pharmaceuticals' failure to terminate Mayne Pharma deal will 'comfort' M&A lawyers
More news: King & Wood Mallesons M&A partner Mark Vanderneut told Capital Brief that the Supreme Court ruling against Cosette Pharmaceuticals' bid to walk from a deal to acquire Mayne Pharma is unsurprising but will provide “some comfort” to lawyers.
Given the hearings were the first time a material adverse change (MAC) clause has been considered by an Australian court under these circumstances, Vanderneut said the ruling could be a “good outcome” for M&A lawyers as it provides more certainty regarding the interpretation of MACs.
Vanderneut said that “the last thing we need in this world is more deal uncertainty”, particularly as the Australian Competition and Consumer Commission’s new merger regime is set to extend regulatory timetables for some deals.
“There’s some comfort, because there was some debate that if [Cosette’s MAC claim] was successful, there was a question as to whether that would make boards more reluctant to agree to MAC clauses,” Vanderneut said.
“The conventional wisdom is it’s very very hard to exercise a MAC termination right and so this is just another evidence point for that case.”
He highlighted that MAC claims are usually invoked to try and renegotiate a deal, with few ever making it to court.
Vanderneut, who was in the courtroom to hear the judgement, said the outcome likely won’t come as a surprise to most people.
It is expected that Cosette will have until 22 October to lodge an appeal, because Cosette and Mayne are currently scheduled to appear before the Supreme Court on 22 October to give legal effect to the deal, pending FIRB approval.
If the scheme is not implemented by 20 November, it will lapse.
Supreme Court rules Cosette Pharmaceuticals cannot walk away from acquiring Mayne Pharma
The news: US-based Cosette Pharmaceuticals has failed in its attempt to walk away from a $672 million buyout of Mayne Pharma, after NSW Supreme Court Justice Ashley Black ruled in favour of Mayne.
However, the deal is still awaiting Foreign Investment Review Board approval.
The details of Black’s judgment were withheld to allow both parties to review the material and make applications for a suppression order if desired.
The context: Cosette Pharmaceuticals previously claimed to have terminated the deal in June on the grounds that a material adverse change (MAC) had occurred at Mayne Pharmaceuticals. This was followed up with a slew of secondary arguments.
Mayne denied that the deal had been terminated, denying all reasons cited by Cosette, and sought a ruling from the NSW Supreme Court. There is no recent legal precedent for a MAC claim being upheld in Australia.
Court hearings were heard over a three week period between 22 September and 10 October.
The Adelaide-based acquisition target pointed to an internal tension in Cosette’s attempt to use internal EBITDA forecasts provided by Mayne to underpin the MAC claim while also alleging that the forecasts were not prepared appropriately.
Mayne also argued that Cosette had waived their right to terminate the deal because it signed the deed poll, verified the scheme book and participated in the first court hearing to allow Mayne shareholders to vote on the deal, while making public representations that they had no reason to believe the scheme would not proceed.
However, Cosette responded that data regarding the sales in Q3 of FY25 were only received in mid-April, after an amendment deed was signed, and that an Untitled Letter sent from the US Food and Drugs administration to Mayne only came to light in May.
The source: NSW Supreme Court
