Lessons from the Mayne Pharma meltdown: protecting your next big deal

For a brief moment, markets were buoyed by the Court’s decision that Cosette’s purported termination of the scheme due to the alleged occurrence of a material adverse change (MAC) and breach of warranties was invalid.

Yet all of this was for naught when the Treasurer blocked the transaction on 21 November 2025. This came after Cosette dramatically reversed course on the future of a key South Australian manufacturing facility prompting direct intervention by the South Australian Government.

Almost certainly, this decision will cast a long shadow of doubt over deal certainty for future targets and bidders alike.

What happened

On 20 February 2025, Mayne and Cosette entered into a scheme of arrangement subject to certain conditions, including:

• FIRB approval condition: The FIRB approval condition was customary and required Cosette to use its best endeavours to procure the approval, and refrain from doing (or not doing) anything that would hinder FIRB approval.
• MAC condition: The MAC condition would be triggered if a decline in Mayne’s EBITDA by at least $10.76 million over 12 months could reasonably be expected. The calculation of Mayne’s EBITDA was subject to a number of exclusions and carveouts, including for changes arising from “general economic or political conditions”.

On 15 May 2025, the Court approved the scheme booklet and made orders convening the shareholders meeting to approve the scheme. The scheme booklet included the following statements by Cosette:

• “If the Scheme is implemented, the Cosette Group’s current intention is to continue the business and operations of Mayne Pharma largely in the same manner as it is currently operated”.
• “The Cosette Group’s current intention is to retain Mayne Pharma’s existing employees to the extent that it is commercially appropriate to do so.”

Cosette also expressed its enthusiastic support for the scheme to the Court at the hearing.

Yet, on 17 May 2025, just two days later, Cosette issued a notice to Mayne alleging that a MAC had occurred, citing weakening sales, a poor earnings update against prior forecasts, and a letter from the US Food and Drug Administration expressing concerns about the promotional materials for a key product. Mayne carried on, despite the purported termination, and secured overwhelming shareholder support for the scheme on 18 June 2025.

On 24 June 2025, unbeknownst to the market, Cosette informed FIRB that, if it were to acquire Mayne, it intended to dispose of or close a key manufacturing facility in South Australia, despite the representations made by Cosette in the scheme booklet. A closure of the facility would lead to over 200 job losses. That led to the South Australian Government intervening in the FIRB application seeking to have Cosette’s bid rejected.

Those developments resulted in the merger playing out in the NSW Supreme Court dispute over the alleged MAC and ultimately in a strategic play involving FIRB.

MAC attacks: Mayne-ly bark and no bite

Faced with the question of whether the matters alleged by Cosette added up to a $10.76 million hole in Mayne’s EBITDA, Justice Black decisively said no. Cosette had not proved that the alleged adverse events caused or could cause the required EBITDA impact. This decision highlights the practical difficulties bidders face when trying to escape a deal using MAC clauses.

Proving a MAC is a high bar

Bidders need to show that a specific event or events together, on the balance of probabilities, can be reasonably expected to have the specified impact. Crucially, attention must be given to the actual events or circumstances giving rise to the MAC and not forecasts or projections. A changes in a forecast may be evidence of changes in underlying circumstances but, by itself, a change in a forecast is not an event or circumstance giving rise to a MAC.

Isolating the impact of the change

Not only does the bidder need to identify the relevant circumstances giving rise to a MAC, but they must also isolate the effect of the alleged event or events from general adverse economic circumstances. In relation to the letter from the FDA, Cosette also failed to show the impact of the letter on Mayne’s business, particularly in circumstances where Mayne implemented changes to its business (that could arguably improve sales) which addressed the FDA’s concerns.

Review the disclosures carefully

Having already fallen flat, Cosette’s attack was dealt a fatal blow when the Court identified that documents uploaded in the data room had long disclosed a decline in the forecasted EBITDA, foreclosing this avenue to establishing a MAC. This is a timely reminder that bidders should (of course) carefully review the disclosures made in the data room.

Emerging from this decision is a clear view that MAC clauses are not so easily exercised. If a party wants their MAC clause to be effective, it must be drafted precisely. Bidders should shy away from broad-stroke exclusions and metrics that cannot be readily modelled, lest their big MAC turns cold when put to proof.

Warranties and disclosures

Unsurprisingly, bidders often look to breaches of warranties when they get cold feet. In addition to the MAC, Cosette also alleged that the missed earnings forecasts breached warranties about the accuracy of the data room materials. However, the Court was not willing to entertain an attack on specific documents in the data room based on general warranties about the data room as a whole.

General warranties are general and not specific

Blanket warranties about the accuracy of the materials uploaded to the virtual data room should be read in context. In the contemporary M&A landscape when data rooms can contain tens, if not hundreds, of thousands of documents, it is inappropriate to construe a general warranty referencing the totality of the documents as guaranteeing the accuracy of each and every document in the data room. Instead, the warranty was read as going to the disclosure materials as a whole.

Exclusions

Mayne’s case was also helped by a clear disclaimer about the accuracy and adequacy of forecasts, projections and forward-looking statements. The Court made it clear that a forecast is exactly that, a forecast. It could not be relied upon as a promise that the company would achieve certain results. The exclusion also meant that Cosette could not rely on the accuracy of the forecast to attack the general warranties about the accuracy of the disclosures.

Regulatory outs: a nuclear option

Given the difficulties Cosette faced in establishing a MAC and breaches of warranties, it is no wonder that Cosette bet on the Treasurer’s reluctance to approve a deal that could result in substantial losses of jobs and manufacturing capabilities.

While the FIRB condition required the bidder to actively procure the approvals, what was missing was a restraint on Cosette from going back on its representations in the scheme booklet about its plans for the future operations of Mayne following the acquisition. It is extremely rare for a bidder to change their investment thesis so late in a deal, and the timing of the change of heart, just one month after the scheme booklet was published, certainly raised eyebrows. Given the lack of transparency, it is no wonder that the Takeovers Panel considered this to be unacceptable behaviour.[2]

Yet, with regulatory and economic headwinds on the way, it would not be surprising to see more bidders waver after a deal is signed. In light of the difficulties of proving MACs and conventional breaches of warranties, bidders are likely to increasingly look beyond the four corners of the contract for ways out.

Key takeaways

When negotiating deals, targets will need to carefully consider whether they are satisfied with simply extracting, for example, greater reverse break fees from faltering bidders, or if they want something more, such as a greater say in submissions to regulatory agencies, or requiring bidders to commit to representations made in deal documents.