MAC Disputes, The Takeovers Panel And FIRB – Reflections On Mayne Pharma's Battle With Cosette

In brief

• The Mayne Pharma/Cosette battle provides a rare example of how things can go awry in a public company transaction.
• It shows that the Takeovers Panel can and should take on a bigger role to resolve disputes more quickly.
• The transaction is likely to lead to parties focussing on standard provisions in their agreements that are sometimes taken for granted and make the parties (especially target companies) seek greater certainty and more safeguards in the event of a dispute arising.

MAC disputes, the Takeovers Panel and FIRB – reflections on Mayne Pharma's battle with Cosette

One of the most significant disputes in M&A for many years has played out between Mayne Pharma and its bidder, Cosette Pharmaceuticals Inc. It involved a number of twists and turns. This article deals with some of the issues that have arisen, including material adverse change clauses, FIRB conditions, the use of the Panel and the courts to resolve disputes in schemes of arrangement and comments on how parties may address these risks in future transactions.

Background and the MAC claim

On 20 February 2025, Mayne Pharma executed a SID for a recommended scheme of arrangement under which US company Cosette Pharmaceuticals Holdings Inc would acquire all the issued shares in Mayne Pharma at a price of $7.40 per share, a total of $672 million. The transaction was on fairly typical terms, including being conditional on there being no material adverse change to Mayne and a requirement for Cosette to secure FIRB approval.

As most readers may be aware, Mayne Pharma announced a profit downgrade two months after the deal was agreed. In response, Cosette claimed a material adverse change entitling it to terminate the deal. Mayne disputed this and the case was argued in the NSW Supreme Court (which took almost 4 months to conclude).

Mayne Pharma won the case as Cosette could not establish that the downgrade was due to a change affecting Mayne's business to the level required under the agreement. In addition, the court found that Cosette had elected to affirm the contract by acting inconsistently with its claim the contract was at an end (without adequately reserving its rights).

These aspects of the story were discussed in our article on 31 October 2025: High bar for material adverse change in M&A: Lessons from the Mayne Pharma / Cosette decision.

The dispute about FIRB approval

As Cosette was a US bidder, the transaction needed FIRB approval to be given unconditionally or on conditions acceptable to Cosette, acting reasonably. That is the standard condition in our market. Both parties were obliged to use best endeavours to secure the approval, also standard.

Originally, Cosette said it had no plans to change Mayne's operations if the transaction was implemented and it became the owner of Mayne. This was stated in the scheme booklet issued by Mayne with Cosette's input. No doubt Mayne relied on this statement in deciding to proceed with the transaction.

However, shortly after seeking to terminate the agreement based on the alleged MAC, Cosette changed its position. It said that, if it got control, it would close a South Australian plant (potentially affecting 200 jobs). Mayne considered that closing the plant made no sense as the plant was profitable and had recently secured government grants and won a number of business awards in South Australia.

The AFR called Cosette's change in position 'despicable' behaviour, seeing Cosette as manipulating the FIRB process to get out of the deal, having failed to establish a material adverse change.

Mayne took the matter to the Takeovers Panel and eventually won orders that Cosette had to accept any condition imposed as part of FIRB approval which was consistent with Cosette's originally stated intentions for Mayne's operations. That order would have allowed the deal to proceed if FIRB approval was conditional.

FIRB rejection

Unfortunately for Mayne shareholders, in a final twist, the Federal Treasurer, Jim Chalmers, declined to approve the deal (conditional or otherwise) saying this was necessary to 'protect Australia's national interest, the security of our critical medical supply chains, local jobs and the local community'.

The Treasurer said that he had 'received unequivocal advice from Treasury and FIRB that no conditions could be put in place to adequately mitigate national interest risks, particularly unique risks to the supply of critical medicines'.

No doubt this decision is very disappointing for Mayne shareholders, coming 9 months after the SID was executed and some 5 months after the MAC dispute arose and the parties had each spent an enormous amount of time and money dealing with the litigation in the Supreme Court and the Panel proceedings.

With the Treasurer's decision, Mayne said that it is seeking to discuss with Cosette how the deal can progress (as required by the SID).

Some comments and reflections

1. Timing problems in resolving disputes

A practical problem in public company transactions is the time it takes to resolve a dispute. Typically, a dispute in relation to a scheme of arrangement would be determined by the court as the court is already dealing with the transaction, having approved the scheme booklet and being apprised of the issues generally.

The Mayne example shows the practical risks of this course of action. Litigation takes time. Furthermore, even if the court hears the matter quickly, it is always possible for the losing party to appeal and then potentially seek a further appeal.

That can often bring into play the 'end date' provisions of the agreement. In other words, if the litigation takes too long to be resolved, the transaction can be timed out and the target cannot hold the bidder to the terms of the deal. That was the fate of a number of transactions when disputes arose during the COVID-19 pandemic.

In the Mayne/Cosette SID, the 'end date' for the scheme was hard-wired as 20 November 2025.¹ When the dispute arose in May 2025, it would have looked like there was plenty of time for the matter to be decided by the court.

However, while the NSW Supreme Court acted quickly to consider the MAC claim (and Black J did an incredible job to hand down a 200 page judgement within 3 days of the close of arguments), it still took the best part of 4 months to reach a decision. This was due to the usual procedural steps in court litigation, including preparing evidence (including expert evidence), arguments about privilege and then hearings and a final decision.

That meant, after the decision was handed down, there was just over a month before the 'end date' of the scheme would be reached to deal with any other loose ends (such as, in this case, the need for FIRB approval).

Apart from the risk of the transaction being timed out, an ongoing dispute will create other issues for the target company. Having a control transaction on foot for a lengthy period of time is very disruptive for the target company. For one thing, it impacts current employees and customers. The target will usually find it difficult to attract new employees and may lose employees at the same time given the uncertainty. Another common issue is that the target is invariably restricted under the SID on how it conducts its business prior to implementation. Many decisions will require the bidder's consent, a process that becomes fraught when the parties are in dispute. That can damage the business.

Therefore, if there is a lengthy period to resolve a dispute, it will be counter to the interests of not only the target company, but potentially the bidder too (assuming the dispute is resolved in favour of the target).

2. Could the Takeovers Panel have heard the MAC claim?

The Takeovers Panel does not have jurisdiction to decide whether, as a matter of law, there has been a MAC.

However, it has general jurisdiction to consider whether 'unacceptable circumstances' have been created in a change of control transaction. This is not limited to takeover bids. It can (and does) hear disputes related to schemes of arrangement, though it has never heard a dispute about a MAC.

The jurisdiction of the Panel concerning schemes was recognised in an early Panel case, St Barbara Mines Ltd[2000] ATP 10 at [21]:

That last comment has been the general take-away from that case, but, if you read on, the Panel's thinking was more nuanced. After comments about the role of the court in a scheme of arrangement, the Panel said:

This shows a distinction between, on one hand, Panel proceedings which cover the same ground as the court's consideration of the scheme process and, on the other hand, disputes which are not before the court.

Readers will know that this distinction has been followed in various matters where the Panel has heard disputes relating to a transaction being undertaken by scheme of arrangement, which are not before the court. The obvious examples are the many Panel matters about break fees and exclusivity provisions dealt with before the first court hearing (for example,National Can Industries, Ross Human Directions, Pacific Energy, Ausnet Services and Virtus).

It follows then that, not only has the Panel power to deal with disputes relating to a scheme of arrangement, so long as the court has not exercised its jurisdiction, the Panel would be acting consistently with its existing policy to hear a dispute relating to a scheme, including a dispute about whether a bidder can rely on a condition precedent that it alleges has been breached.

Flinders Mines Ltd [2012] ATP 9 is an example of Panel proceedings about an alleged breach of a condition precedent in a scheme of arrangement. In that matter, after the court-supervised scheme meeting had approved the transaction, an injunction was obtained by a shareholder in a Russian court which breached a condition precedent. It was a clear breach. The injunction prevented the bidder from proceeding with the transaction. The Panel considered that it would not make an order to amend the contract which all parties and the market had relied upon. Therefore, it declined to commence proceedings. But the Panel and the parties all proceeded on the basis that the Panel had power to hear the dispute about the condition precedent.

So, it seems clear that the Panel has jurisdiction to consider an alleged breach of MAC or other SID condition. The question, until now, is whether the parties are willing to go to the Panel instead of relying on the more traditional route of going to the courts.

In view of Mayne's success in going to the Panel regarding the FIRB aspect of the dispute, it seems likely that more parties will go to the Panel in the future for contractual disputes in a scheme of arrangement.

In my view, leaving aside some of the more technical issues under schemes law (such as constituting classes and dealing with divergent interests, which would not be issues for the Panel in any event), the Takeovers Panel is equally well-equipped to consider the impact of a dispute in a scheme of arrangement as it is in a takeover bid.

I consider that hearing these disputes by the Panel would be an improvement to Australia's market for corporate control. There is no reason why the three members of the Takeovers Panel could not deal with a dispute concerning, say, a material adverse change condition just as well, if not better, than a judge of the Supreme Court or the Federal Court. When the Takeovers Panel was set up in the 1990s, that was seen to be an advantage. I believe that advantage still subsists today.

There is another benefit of going to the Panel instead of the courts. The courts can decide a legal dispute and make consequential orders. However, the Panel has much broader powers to make orders that correct any unacceptable circumstances. This may include orders that parties cannot rely on contractual rights or must amend their contract. There are two examples from the Mayne case:

• The Panel made an interim order amending the definition of 'end date' in the SID and that Cosette could not rely on any termination right if the 'end date' was reached without the Panel's consent.
• The Panel made orders that Cosette had to accept any FIRB conditions consistent with the stated intentions for Mayne as set out in the scheme booklet.

3. How would the Panel approach a MAC claim?

As I said above, the Takeovers Panel does not have jurisdiction to decide whether, as a matter of law, there has been a MAC.

The Panel's role is to consider whether the bidder relying on the alleged breach of a condition would create 'unacceptable circumstances'.

There is a precedent for this in a takeover bid. In NGM Resources Ltd [2010] ATP 11, the bidder threatened to rely on a no force-majeure condition after a number of mining staff were abducted by Al Qaeda at a mine site in the same general vicinity as the target's mine. The Panel decided it would be unreasonable to rely on the bid condition and the bid proceeded.

In the Mayne/Cosette example, this approach would require the Panel to consider whether Mayne's lower sales figures and other elements of Cosette's complaint would justify Cosette relying on the MAC condition.

In this regard, the Panel would apply the usual principles of Chapter 6 set out in section 602 of the legislation, including the need for takeovers to occur in an efficient, competitive and informed market.

With the benefit of hindsight, had the Panel heard the MAC dispute, it is likely that that would have been resolved soon after the dispute arose. That would have left more time to deal with the remaining issues without the enormous time pressure on the parties as the 'end date' of the scheme approached.

We know from Mayne's Panel application made about the FIRB condition, that the Panel can be quick in resolving disputes. Maybe that would have allowed more time to deal with the other issues before the 'end date' deadline was reached.

4. Risk management issues

When transactions proceed smoothly, the terms of the implementation agreement are not tested. It is only when problems arise that the agreement is stress tested, and any limitations or issues become apparent. The issues in the Mayne saga will give companies pause to consider various issues and how they might have been resolved. This includes:

• Should there be more resistance to targets granting a MAC? Our statistics for FY25 show 94% of schemes have a MAC. In our sample of private deals for CY24, this is closer to 40%. MAC's in private deals are strongly resisted by sellers, and often among the last points settled. The Mayne decision is pause for thought – why should MACs in public deals be more generously adopted by targets? On first principles, there is no good reason for the difference in approach.
• Should a SID expressly provide for disputes to be resolved under Chapter 6 principles in a Panel application, rather than by the courts? In the UK, the City Code requires a scheme implementation agreement to provide that a bidder cannot rely on a condition without Panel approval (subject to limited exceptions, such as breach of regulatory condition, failure of shareholders or the court to approve a scheme and the like).
• In relation to regulatory approvals, it is likely that target companies will want more visibility about what the bidder will be saying to the regulator and what conditions and concessions it is willing to give. An obligation to act 'reasonably' in this regard may not be enough. Should the usual restriction against the target dealing directly with a regulator be qualified if the bidder changes its stated intentions and the target needs to put its case directly?
• Should a reverse break fee be payable if the bidder changes its stated intention relevant to obtaining a regulatory approval? We have seen that in a number of transactions in our market, but perhaps the Mayne example will lead to more targets insisting on such a provision. A related point is the size of the reverse break fee. To truly compensate the target for breach, a fee greater than 1% is likely required.
• Should the 'end date' under the agreement extend automatically in the case of a dispute?
• Should the conduct of business restrictions be relaxed if the bidder purports to terminate the transaction?

Conclusion

The Mayne/Cosette saga will make target company directors think hard about the certainty of transactions, how conditions may bring about the end of a deal, the legal consequences for a bidder of taking actions that may hamper obtaining regulatory approvals and how best to resolve any dispute should one arise.

It seems likely that, in future, we will see more disputes brought to the Takeovers Panel instead of the courts as all parties and shareholders benefit from a speedy resolution of any dispute. That would move us closer to how these disputes are dealt with in the UK.

To encourage parties coming to the Panel with disputes in schemes of arrangement, I have previously suggested that the Panel should issue a consultation paper on the issue and seek feedback from the market. Based on that feedback, it should be able to frame some policy guidance as to how it would assist parties resolve disputes in control transactions that are schemes of arrangement. I think this would be an enhancement to Australia's market for corporate control.

Footnote

1 It is possible to include a provision which extends the 'end date' under the SID if there is litigation on foot to enforce the agreement at the time of the end date. The Mayne/Cosette SID did not have this provision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.