After months of legal attempts to get out of its $430 million buyout of Australia’s Mayne Pharma, Cosette Pharmaceuticals has received a lifeline from the Australian government.
Australia’s Treasurer Jim Chalmers’ decision took the advice of Australia’s Foreign Investment Review Board (FIRB) and was based on “national interest grounds,” he said in a Nov. 21 release.
“This is about doing what is necessary to protect Australia’s national interest, the security of our critical medical supply chains, local jobs and the local community,” Chalmers explained.
With that, Mayne must lay to rest its fervent efforts to maintain the original deal. The company is “currently assessing its options and next steps,” it said in a notice to shareholders.
New Jersey-based Cosette was hoping to become a global women’s health powerhouse when it inked a pact in February to take over all outstanding Mayne shares at AUD $7.40 per share. But buyer's remorse seemed to set in shortly afterward, as told through a series of filings Mayne issued with the Australian Stock Exchange.
According to a May notice Mayne issued to its shareholders, Cosette asserted that a material adverse change had occurred on Mayne’s end, triggering obligations to “promptly consult in good faith for 10 business days.” That clause is a requirement for parties seeking to terminate a scheme implementation deed (SID), Mayne noted. An SID is the term for a binding agreement used to dictate M&A in Australia and the U.K.
Cosette’s concerns seemingly began with Mayne’s financial performance and future forecasts issued to Cosette around March, according to the Australian Financial Review. Plus, a letter from the FDA noting that Mayne had made “misleading” claims about its contraceptive medication, Nextstellis, didn’t help the situation when it arrived in late April, although that matter was eventually resolved by June, Mayne would later say.
Even so, Mayne attempted to wave off Cosette’s concerns and carry on with the SID, rejecting Cosette’s contention of a material change and maintaining that “there is no obligation for the parties to consult,” although it remained open to a dialogue, it said in May.
By June, Cosette formally tried to terminate the deal. Once again, Mayne moved to reject the termination as “invalid” on the grounds that there was “no lawful basis” for its buyer to cancel the SID. The matter was quickly brought to the Supreme Court of New South Wales (NSW), where Cosette sought a declaration of a validly terminated SID and a fee from Mayne. Days later, Mayne’s shareholders voted in favor of the buyout, Mayne said in a later filing.
Mayne ultimately won out in the courts in October, when the Supreme Court ruled that Cosette did not validly terminate its takeover deal. According to global law firm HSF Kramer, the court found that Mayne’s financial materials or its FDA letter quantified as a material adverse change, meaning that Cosette couldn’t cancel its deal.
Even so, the Australian government and its Foreign Investment Review Board (FIRB) still needed to weigh in, which is where the wheels ultimately fell off after months of Mayne’s attempts to forge ahead with the deal.
On Nov. 19, the Australian government’s Takeover Panel issued a release pointing to Cossette’s intentions with Mayne’s manufacturing site in Salisbury South, South Australia.
According to the panel, Cosette alerted the FIRB that it intended to “dispose of or close” the Salisbury site, which constituted a “change of intentions” that wasn't previously known. Mayne got wind of this in late October, when Australia’s Treasurer warned Cosette that he was “considering” prohibiting the acquisition.
Given that the original contract between Mayne and Cossette stipulated that Cosette would “continue the business and operations of Mayne Pharma largely in the same manner as it is currently operated,” Mayne sought out orders from the Australian Takeover Panel that would compel Cosette to agree to “any conditions” from the government related to the site to keep the deal afloat.
As Mayne saw it, Cosette had "exhausted other avenues to avoid completing the transaction" and was left to leverage the knowledge of the "likely discomfort FIRB has with the notion of job losses and loss of manufacturing capability in Australia" to cause the agreement to fail without FIRB's approval, it said in its application with the Takeover Panel.
The panel ultimately ruled that Cosette must agree to conditions required by the Treasurer in connection with the Salisbury site. Chalmers “took seriously” the final ruling from the panel, which, he notes, is independent and not governed by a national interest test.
Still, the FIRB advised the Treasurer’s decision with its warning that “no conditions could be put in place to adequately mitigate national interest risks, particularly unique risks to the supply of critical medicines.”