Author
Aabid Farouk
The high-stakes legal standoff between Cosette Pharmaceuticals and Mayne Pharma offers a timely reminder of a critical issue for both buyers and sellers in mergers and acquisitions: how material adverse change (MAC) clauses are drafted, negotiated, and ultimately enforced.
Despite their frequent inclusion in transaction documents, MAC clauses often sit idle - rarely tested in court and even more rarely successful. Yet, as economic uncertainty rises and buyers become more wary of downside risks, the recent Supreme Court of NSW litigation reveals how MAC clauses can quickly move from boilerplate to battleground.
The Case: Cosette v Mayne Pharma
In February 2025, US-based Cosette Pharmaceuticals offered $672 million to acquire Mayne Pharma, an Australian and US-based contraceptive and women’s health company. Five days after signing the scheme implementation deed, Mayne released its half-year results, which Cosette alleges failed to reveal declining US sales in January and February - sales that would later underpin an April earnings downgrade.
By June, Cosette cited a “material adverse change” in Mayne’s financial performance as grounds to walk away from the deal. It argued that the downgrade, coupled with regulatory concerns over Mayne's flagship contraceptive, Nextstellis, constituted a MAC. The matter escalated to the NSW Supreme Court, with Cosette seeking access to financial modelling and communications from Mayne and its adviser, Jefferies.
Notably, Australia has no precedent for a bidder successfully invoking a MAC clause to terminate a deal. Previous cases, like EQT's attempted withdrawal from its Metlifecare acquisition during the COVID-19 pandemic, have settled before final judgment. But this case could set a new benchmark.
Key Takeaways for Corporate Dealmakers
1. MAC Clauses Must Be Tailored, Not Templated
A common pitfall is relying on vague or generic MAC drafting. The Mayne-Cosette case reinforces the risk of this approach. Cosette’s argument hinges on Mayne's earlier earnings forecasts lacking "reasonable grounds" - a claim that would be difficult to assess unless the MAC clause specifically defines what constitutes a material change.
In our experience, well-drafted MAC clauses should:
- Define thresholds (e.g., EBITDA reductions by a set percentage)
- Carve out exceptions for general market or regulatory risks
- Be specific as to events and durations (e.g distinguish between business-specific from systemic risks, incorporate time-based qualifiers)
A buyer might accept macroeconomic risks but not a target’s internal financial deterioration - precisely the point Cosette is pressing in this dispute.
2. The Burden of Proof Falls Heavily on the Party Invoking the Clause
As Australian courts have consistently required, the change must be both material and adverse, and not merely a short-term or anticipated fluctuation. Cosette must show not just that Mayne’s performance declined, but that the decline is likely to have a durationally significant impact on its long-term earnings or value - a high bar.
Buyers considering a MAC trigger must prepare to support their position with detailed evidence - financials, correspondence, forecasts - all of which may become court-ordered disclosures.
3. Advisers and Forecasts Are Under the Microscope
Jefferies, Mayne’s financial adviser, is now being asked to produce spreadsheets and internal modelling. This underscores how closely courts will scrutinise not only the financials made public, but also the internal process behind them.
Parties should ensure that forecasts are based on defensible assumptions and are not selectively omitting negative trends. The reputational and legal risks of failing to do so can be profound.
Strategic Considerations for Buyers and Sellers
For Buyers:
- Negotiate a clear and precise MAC clause that includes specific financial thresholds, product risks, or regulatory matters relevant to the target
- Seek early due diligence on trends rather than point-in-time data. Month-on-month volatility can signal issues
- Document the rationale for earnings assumptions - contemporaneous records will be critical if the MAC clause is tested
For Sellers:
- Disclose early and disclose well. If negative trends exist - even if not yet formalised into guidance - they should be flagged
- Push for carve-outs that insulate against sector-wide issues, regulatory reviews, or supply chain delays
- Maintain consistent internal records. Any gaps between internal models and public forecasts may create exposure
Looking Ahead
The outcome of Cosette’s challenge will be closely watched by dealmakers across Australia. This case illustrates that, with the right (or wrong) facts, these clauses can become the fulcrum of multimillion-dollar litigation.
For now, the lesson is clear: MAC clauses must be actively negotiated, context-specific, and carefully considered - not just uplifted from a precedent document and inserted into transaction documentation.
Material in this article is available for information purposes only and is a high-level summary of the subject matter. It is not, and is not intended to be, legal advice. Hazelbrook does not guarantee the accuracy of the information provided. You should first obtain professional legal advice prior to taking any action on the basis of any information contained in this article. This article is copyright. For permission to reproduce this article please email Hazelbrook Legal: enquiry@hazelbrooklegal.com
