NSW Court of Appeal: Rejects Pharma Takeover Exit Bid Appeal

On October 14, 2026, the New South Wales Court of Appeal in Australia unanimously dismissed Cosette Pharmaceuticals' appeal, affirming that cost savings must be considered when assessing a material adverse change (MAC) clause in a takeover deed, thereby preventing Cosette from terminating its acquisition of Mayne Pharma. This significant ruling in *Cosette Pharmaceuticals, Inc v Mayne Pharma Group Limited* [2026] NSWCA 215 upheld a Supreme Court decision, reinforcing the principle that contractual terms, particularly those defining MAC events, will be interpreted strictly according to their plain meaning. Cosette had sought to exit a scheme implementation deed signed in February 2025 to acquire Mayne Pharma, alleging a MAC event after weak third-quarter sales in May 2025, which it followed with a termination notice in June. The MAC clause allowed termination if an event reduced Mayne Pharma’s maintainable EBITDA by at least $10.76 million over 12 months. However, both parties' accounting experts agreed that once operating cost savings were factored in, the sales shortfall fell below this stipulated threshold. Cosette contended that these savings, stemming from Mayne Pharma's discretionary business decisions like cutting staff incentives, should be disregarded, an argument the Court of Appeal firmly rejected, finding no basis in the deed to differentiate such savings from other financial consequences.

This decision carries substantial legal significance for practitioners involved in mergers and acquisitions, particularly concerning the drafting and interpretation of MAC clauses in Australian scheme implementation deeds. It underscores the judiciary's strong emphasis on contractual certainty and its reluctance to imply terms or carve out exceptions not explicitly articulated within commercial agreements. The ruling clarifies that, absent specific language to the contrary, cost savings achieved by a target company, even if arising from discretionary management actions, will be included in the calculation of financial impacts under a MAC clause. This impacts how acquirers assess and price risk, and how target companies manage their operations during the often-protracted period between signing and completion of a takeover, as their actions can directly influence the validity of a MAC claim.

The legal context for this case is rooted in Australian contract law, specifically the interpretation of commercial agreements within the framework of corporate takeovers by way of schemes of arrangement, which are governed by the Corporations Act 2001 (Cth) and require court approval. The New South Wales Court of Appeal, as an appellate court, reviewed and affirmed the decision of the New South Wales Supreme Court, demonstrating the consistent judicial approach to contractual interpretation in this jurisdiction. The key parties involved were Cosette Pharmaceuticals, Inc., as the appellant and prospective acquirer, and Mayne Pharma Group Limited, as the respondent and target company. The core of the dispute revolved around the precise wording and application of the material adverse change provision within their scheme implementation deed, highlighting the critical role of detailed and unambiguous drafting in complex M&A transactions.

For practising attorneys and legal professionals, the primary takeaway from this ruling is the imperative for meticulous drafting of MAC clauses in M&A agreements. It is crucial to explicitly define what constitutes a