No sure exit: Court confirms high bar to terminate M&A transaction based on a material adverse change

In a landmark decision on 15 October 2025, the NSW Supreme Court ruled in favour of ASX listed, Mayne Pharma Group Limited (Mayne Pharma) in its high-profile dispute with Cosette Pharmaceuticals, Inc. (Cosette) – one of the most closely watched M&A transactions of the year.

Delivered by Justice Black under intense commercial urgency, the case traverses every pressure point of Australian public M&A: material adverse change (MAC) clauses, continuous disclosure, breaches of representations and warranties, misleading and deceptive conduct under the Australian Consumer Law, termination and election, and the reach of “anti-waiver” provisions.

The Court ruled overwhelmingly in favour of Mayne Pharma, holding that Cosette was not entitled to terminate its proposed acquisition of Mayne Pharma under the MAC provisions in the scheme implementation deed (SID). The Court found that, although there had been some adverse developments in Mayne Pharma’s business, Cosette failed to establish that these met the specific quantitative threshold required to trigger a MAC under the SID. Additionally, the Court found that Cosette failed to establish any breach by Mayne Pharma of the warranties relating to the accuracy of due diligence materials, nor had it established any misleading or deceptive conduct by Mayne Pharma. In the context of limited Australian case law on the operation of MAC clauses in public M&A transactions, this judgment provides important guidance for practitioners and transacting parties. It clarifies not only the interpretation and application of MAC clauses, but also the treatment of forecast disclaimers and the relevance of a bidder's post-signing conduct when seeking to exercise termination rights – matters which are central to deal certainty and contractual risk allocation.

Background to the Mayne Pharma / Cosette MAC dispute

On 20 February 2025, Mayne Pharma, an ASX-listed pharmaceutical company, entered into a SID with Cosette, under which Cosette agreed to acquire all Mayne Pharma shares for A$7.40 per share (≈A$615m) by way of scheme of arrangement. The SID contained customary conditions precedent, including that no Mayne Pharma MAC occurs before the second court date.

On 17 May 2025, two days after the first court hearing at which Cosette had supported the scheme, Cosette issued a termination notice alleging that a MAC had occurred (MAC Notice) as a result of the following:

• Mayne Pharma's Q3 FY25 sales performance deterioration against its internal forecast; and

• an “untitled letter” from the US Food & Drug Administration to Mayne Pharma dated 28 April 2025 concerning promotional claims for its oral contraceptive product, "Nextstellis" (FDA Letter) and Mayne Pharma's subsequent revision of its marketing materials.

On 4 June 2025, Cosette purported to terminate the SID on the basis of the MAC clause.

On 13 June 2025, Cosette issued a second termination notice, alleging alternatively that Mayne Pharma had breached a representation and warranty in the SID (that by reason of alleged deficiencies in the preparation and collation of the due-diligence material) and continuous disclosure obligations.

Mayne Pharma rejected the validity of these termination notices and commenced proceedings in the Supreme Court of New South Wales seeking declarations that no MAC had occurred and the SID remained valid.

Despite the pending dispute, Mayne Pharma shareholders overwhelmingly approved the scheme at the meeting on 18 June 2025.

Cosette sought a declaration from the Court that the SID was validly terminated (or was otherwise void) together with an order requiring Mayne Pharma to pay the agreed break fee, or failing that, damages in the same amount. It also sought a declaration that Mayne Pharma engaged in misleading or deceptive conduct in breach of the Australian Consumer Law.

No MAC

Cosette’s termination notice turned on the interpretation of the MAC clause in the SID, and its application in light of the allegations raised in the MAC Notice. The relevant clause, subject to various carve-outs, including for events, matters or circumstances "Fairly Disclosed" in the "Due Diligence Materials", provided that a MAC occurs when:

"Any event, occurrence, change, circumstance or matter, whether occurring before, on or after the date of this deed, which has, has had or is (either individually or when aggregated together with any such other events, occurrences, changes, matters or circumstances) reasonably expected to have, the effect of diminishing the consolidated Maintainable EBITDA over a 12-month period of the Mayne Group, taken as a whole, by at least A$10.76 million."

The Court concluded that no MAC had occurred under the SID. In particular, the FY25 Q3 earnings shortfall was $8.618 million, short of the A$10.76 million EBITDA threshold required to trigger a MAC under the SID.

Cosette argued, amongst other matters, that that the Q3 FY25 sales performance could be reasonably expected to diminish Mayne Pharma's maintainable earnings in FY25 by more than $10.76 million, when compared to the forecasted sales performance in the "FY25 6 + 6 Forecast" during the same period. However, Justice Black rejected this argument, making a series of observations clarifying why changes in forecasts could not, of themselves, constitute a MAC, noting that:

• "a comparison of forecast earnings at different times does not establish a decline in a company’s actual financial performance, since a forecast ordinarily reflects expectations as to that performance, which may or may not ultimately correspond to those expectations";

• "a change in [Mayne Pharma]’s forecast does not, in itself, have any diminishing effect on [Mayne Pharma]’s EBITDA for the purposes of the definition of [MAC] and the operative clauses in the SID, but only indicates an estimate, at a point of time, of the impact of other matters that may affect [Mayne Pharma]’s actual Maintainable EBITDA";

• "there is … a fundamental conceptual difficulty with a claim by reference to changes in [Mayne Pharma's] forecasts, namely that the material adverse change in EBITDA contemplated by the SID is a change in [Mayne Pharma]’s actual position, between two points in time in a 12 month period, not a change between a forecast and an actual position … [A]n attempt to establish [the MAC] by comparing forecast results with actual results would defeat the disclaimer in respect of the forecast, in a manner that is not available on the proper construction of the SID or in such provisions generally"; and

• "a change in forecast is not itself an “event, occurrence, change, circumstance or matter”, but the reflection of a range of other events, occurrences, changes, circumstances or matters which give rise to the range of earnings that are the subject of that forecast."

The Court further accepted Mayne Pharma's contention that the forecasts disclosed during due diligence (including the "FY25 6 + 6 Forecast") were clearly disclaimed as to their accuracy and were "Fairly Disclosed", meaning that "events, occurrences, changes, circumstances or matters" relating to those forecasts were expressly excluded from the operation of the MAC clause.

Additionally, the Court found that, based on the evidence and calculations presented by Cosette, the FDA Letter and Mayne Pharma’s subsequent marketing revisions did not have a material adverse financial impact on Mayne’s maintainable EBITDA within the relevant 12-month period. Justice Black also concluded that a reasonable person would not expect these matters to have a material effect on the price or value of Mayne Pharma’s securities.

No breach of the due diligence materials warranties

Cosette's alternative claim, that Mayne Pharma had breached a representation and warranty under the SID relating to the accuracy of the "Due Diligence Materials" which was "material in the context of the Transaction as a whole", thereby giving Cosette a right to terminate the SID, also failed.

The Court found that:

• the “Due Diligence Materials” warranty, which assured that reasonable care was taken to collate the virtual data-room documents, applied to the preparation of the due diligence materials as a whole, rather than to the accuracy of each individual document. The definitions of "Due Diligence Materials" and "Data Room Materials" were directed to the totality of the documents falling within those definitions, read as a whole, and not to each individual document falling within those definitions;

• Mayne Pharma’s forecasted sales performance, as set out in its internal "FY25 6 + 6 Forecast", was prepared with reasonable care and was not misleading. The mere fact that the actual results departed from the forecast did not obligate Mayne Pharma to retrospectively revise a prior forecast; and

• The "FY25 6 + 6 Forecast", which was subject to inherent uncertainties, did not amount to a representation that Mayne Pharma "expected" the forecast to eventuate, nor would any reasonable business person interpret a forecast as indicating an expectation of a single figure result.

No continuous disclosure or ACL contraventions

The decision also provides useful guidance on continuous disclosure and Australian consumer law compliance, confirming that Mayne Pharma's conduct did not breach either the SID or applicable law. In particular, it was confirmed that:

• ex ante materiality is assessed objectively and on the information context available at the time, considering whether the information would, or would be likely to, have a material effect on the price or value of the entity's securities;

• the mere receipt of an FDA untitled letter, absent evidence of regulatory sanction or proven sales impact, would not reasonably be expected to materially affect Mayne Pharma’s share price;

• the post-disclosure share price fall could not be causally connected to the FDA Letter alone, given confounding factors such as analyst commentary, short-selling recommendations and media reports on US tariffs. Accordingly, Cosette failed to provide sufficient expert evidence to establish causation; and

• Mayne Pharma’s ASX announcements were accurate and not misleading, appropriately contextualising the FDA Letter and the company's continued sales.

Election / affirmation defeats termination

Cosette's claim that it had validly terminated the SID due to the occurrence of a MAC was also successfully dismissed on the basis of Mayne Pharma's election defence. Mayne Pharma argued that Cosette had affirmed the SID (and therefore could no longer elect to terminate) by:

• executing an Amendment Deed on 1 April 2025 confirming the SID remained “in full force and effect”;

• executing a Deed Poll in favour of Mayne Pharma shareholders on 9 May 2025; and

• supporting the scheme at the first court hearing on 15 May 2025 without reserving any rights (other than as to the FDA Letter),

(together, the Affirming Actions).

Cosette sought to rely on the "anti-waiver" clause in the SID which provided that "any failure [of Cosette] to exercise or a delay in exercising any right, power or remedy under the SID does not operate as a waiver". According to Cosette, the "anti-waiver" clause meant that the Affirming Actions could not waive its right to terminate the SID.

The Court disagreed, holding that Cosette, through its Affirming Actions, had unequivocally affirmed the SID with full knowledge of the alleged MAC and warranty breaches and that the anti-waiver clause could not abrogate the common law doctrine of election, explaining that:

"Cosette’s choice, with admitted knowledge of relevant matters, to amend the SID and affirm its continued operation was necessarily inconsistent with a choice to terminate and amounted, at least, to an election not to terminate the SID by reason of the matters then known to it."

In particular, in reaching its view, the Court emphasised the public policy rationale underlying schemes of arrangement, noting that its view was reinforced by the broader context in which an acquirer’s decisions can have significant public impacts, not only on the target company and its shareholders, but also upon its employees and the communities in which it conducts business.

FIRB intervention throws Mayne Pharma / Cosette transaction into uncertainty once again

As an update, the long-running dispute took yet another turn in late October 2025, when the Foreign Investment Review Board (FIRB) raised a further obstacle in completing the transaction. Although the Court upheld the transaction, the Treasurer issued a preliminary view that Cosette's acquisition may be “contrary to the national interest”, citing concerns that Cosette intends to shut or divest Mayne’s TGA and FDA approved manufacturing facility in Adelaide, a plant recently bolstered by an $18 million upgrade and federal grant support.

FIRB has sought an extension of the statutory deadline to 1 December 2025, pushing the timetable beyond the scheme’s current 20 November end date and prompting Mayne Pharma to urge Cosette to expedite its submissions and honour with its “best endeavours” obligations under the SID. In its market update, Mayne Pharma indicates that Cosette re-evaluated its intentions concerning Mayne Pharma’s manufacturing site in Adelaide following its unsuccessful attempts to terminate the Scheme. Given the valuable nature of the cite, Mayne Pharma states that it does not consider that it would be commercially rationale to close the site and has consistently communicated this to Cosette since Cosette informed FIRB of its stated change of intentions.

The Treasurer may choose not to be the ultimate decision-maker on the Mayne Pharma–Cosette transaction and instead approve the acquisition with conditions. These could include requiring the continued operation of the Adelaide manufacturing site for a certain period of time and advance notice and consultation with FIRB before any decision to close or divest the facility. Under the SID, Cosette must obtain FIRB approval subject only to standard tax conditions and “such other conditions acceptable to Cosette (acting reasonably).” If Mayne’s assertion that the Adelaide site is commercially viable is correct, Cosette may be obliged to accept these conditions and proceed with the transaction. However, if the Treasurer imposes conditions that Cosette rejects but Mayne deems are “not unreasonable,” the dispute could indeed return back to the courts. This development may also prompt targets to increasingly impose strict “hell or high water” provisions, obliging buyers to accept all conditions and take all necessary actions to obtain regulatory approvals, thereby preventing an acquirer from using such conditions as a pretext to walk away due to buyer’s remorse.