When Caution Becomes Commitment: Lessons From The Mayne Pharma MAC Decision

The recent decision in Mayne Pharma Group Limited [2025] NSWSC 1204, has become a defining moment for how Australian courts interpret and apply Material Adverse Change ("MAC") clauses in mergers and acquisitions.

The ruling provides guidance on the threshold for establishing a MAC, the treatment of forecasts in financial covenants, and the risks of waiving termination rights through continued performance under a transaction agreement.

The outcome underscores that MAC clauses are not catch-all provisions that allow acquirers to walk away from a deal due to market nervousness or temporary underperformance. Instead, they are precise contractual mechanisms that require clear, causal, and quantifiable proof of material harm.

In February 2025, Cosette Pharmaceuticals, agreed to purchase Mayne Pharma Group Limited for approximately A$672 million through a Scheme Implementation Deed ("Relevant Sale Agreement") at A$7.40 per share.

What began as a smooth, cooperative transaction soon unravelled. In April 2025, Mayne received an "Untitled Letter" from the U.S. Food and Drug Administration ("FDA") questioning elements of the promotion of a key product of Mayne Pharma. Around the same time, the company's sales performance lagged behind internal forecasts.

Citing these developments, Cosette claimed a material adverse change had occurred, triggering its right to terminate the Relevant Sale Agreement. Mayne rejected the notice and commenced proceedings in the Supreme Court of New South Wales, seeking to enforce the transaction.

The Court's decision addressed several questions central to the operation of MAC clauses:

• What constitutes an "event or change" capable of triggering a MAC?
• Can a shortfall against forecasts amount to a MAC?
• What evidentiary burden applies when the clause contains a quantitative threshold?
• How do disclaimers and data-room warranties interact with a MAC claim?
• Can a party waive its right to rely on a MAC by affirming the agreement through its conduct?

Cosette contended that two developments — weaker-than-expected quarterly earnings and the FDA letter — collectively triggered the MAC clause in the Relevant Sale Agreement. The clause required proof of a reduction in maintainable EBITDA of at least A$10.76 million over a 12-month period.

Cosette argued that Mayne's financial results showed a substantial downturn in underlying demand and that the FDA's communication would damage the commercial viability of the key product in question. It also alleged that Mayne had breached continuous disclosure obligations by failing to immediately inform the market and had violated a warranty requiring it to exercise "reasonable care" in preparing due diligence materials. Mayne argued that Cosette's case rested on misconceptions about the nature of forecasts and the meaning of a MAC. Forecasts, the company said, represent expectations — not events — and therefore cannot themselves trigger a MAC. Variances between forecast and actual performance may illustrate trends but do not constitute a change or occurrence within the meaning of the clause.

Mayne further maintained that the FDA letter was an administrative query with no material financial effect, and that the relevant disclosures and disclaimers in the Relevant Sale Agreement protected it from warranty-based claims.

The Court dismissed Cosette's claim in its entirety. The Court's reasoning provides detailed and practical guidance on how courts will interpret MAC clauses in future M&A disputes.

• Forecasts do not constitute "events" or "changes"
  The Court drew a sharp distinction between evidence of change and change itself. A variance between forecast and actual performance may serve as evidence that something has changed, but it is not an event capable of triggering a MAC. The acquirer must identify a specific, external event or change that has caused measurable financial harm — not merely internal assumptions proving inaccurate. This finding confirms that the predictive nature of forecasts means they cannot, on their own, form the basis of a MAC claim.
• High evidentiary burden under quantified MAC thresholds
  The Relevant Sale Agreement set a clear financial test: a fall in Maintainable EBITDA of A$10.76 million or more within a specified period. The Court held that this threshold must be objectively proven, with credible evidence that the decline is both measurable and directly linked to the alleged event. Short-term revenue softness or missed internal projections fall short of this standard. The decision reinforces that quantified MAC clauses demand hard proof, not speculation or inference.
• The FDA letter was not material
  The Court accepted that the FDA's communication could constitute an "event," but found that it lacked materiality. The issues identified by the regulator were relatively minor and capable of being addressed with minimal cost. There was no evidence that the letter had any demonstrable impact on Mayne's earnings or that it would cause lasting harm to the business. Without a clear financial effect, the event could not meet the MAC threshold.
• Disclaimers and due diligence warranties upheld
  Cosette's attempt to rely on a "reasonable care" warranty in relation to the due diligence process also failed. The Court held that this warranty concerned the manner in which the data room was compiled, not the absolute accuracy of its contents. Importantly, specific disclaimers surrounding forward-looking information remained effective. A general warranty could not override express statements cautioning that forecasts were uncertain and subject to change.
• Waiver of termination rights
  Perhaps the most consequential aspect of the judgment was the Court's finding that Cosette had waived its right to terminate. After the alleged MAC events, Cosette continued to act in a manner consistent with affirming the Relevant Sale Agreement — including participating in court proceedings to advance the scheme, executing deed polls, and failing to reserve its rights. The Court concluded that by these actions, Cosette had affirmed the agreement and lost the ability to later terminate on MAC grounds. Once a party elects to proceed after becoming aware of potential breaches or adverse events, it cannot subsequently change course when the commercial landscape shifts.

The judgment provides critical clarity for both buyers and sellers navigating volatile market conditions.

For Acquirers

• MAC clauses are not escape routes: Courts will enforce MAC clauses according to their strict terms. Commercial unease, disappointing performance, or missed forecasts will not suffice.
• Evidence must be objective and quantifiable: Buyers must demonstrate an identifiable event that directly and measurably impacts earnings or asset value.
• Preserve rights explicitly: If a potential MAC arises, acquirers should immediately document their position and reserve rights to terminate. Continuing to perform the agreement without reservation (or even with reservation, depending on the level of performance) may constitute affirmation and waiver.

For Targets

• Certainty and stability reinforced: The decision protects target companies from opportunistic termination attempts based on temporary volatility or external noise.
• Importance of clear carve-outs: The inclusion of carve-outs for forecasts, disclosed risks, or industry-wide events remains an effective defence against MAC claims.
• Transparency in disclosure: Consistent communication with regulators and markets remains essential, but the decision confirms that not every regulatory query must be treated as a disclosure trigger.

There are a number of practical drafting tips that should be considered, to reduce uncertainty and the risk of litigation. The parties should:

• Define "Materiality" quantitatively, by defining MAC thresholds in measurable contractual metrics (e.g., EBITDA impact), and specify the time frame for assessment.
• Clarify exclusions and carve-outs, by excluding known risks, general economic downturns, and forecast variations to prevent disputes over ordinary commercial fluctuations.
• Include a notice and cure process that requires that any alleged MAC event be notified promptly, with a specified cure period before termination rights crystallise.
• Expressly reserve rights, and in particular, buyers should formally reserve all rights when continuing performance during a potential dispute period.
• Align with disclosure obligations by ensuring that the MAC framework dovetails with ASX continuous disclosure requirements to avoid inconsistency or double exposure.

The Court's decision has re-set the standard for invoking MAC clauses in Australian public M&A. The ruling confirms that MAC clauses will be interpreted narrowly and objectively, requiring demonstrable impact to a defined contractual metric rather than subjective perceptions of risk. It also highlights that conduct matters — a buyer who acts as though a deal remains on foot may lose the ability to later withdraw. For both buyers and targets, the case underscores a fundamental principle of dealmaking: certainty of contract prevails over post-signing anxiety. In a volatile economic environment, careful drafting, disciplined disclosure, and timely legal advice remain the best defences against disputes over a material adverse change.

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.