A high-stakes legal battle unfolded between Mayne Pharma and Cosette Pharmaceuticals, with a $672 million takeover deal at stake. The NSW Supreme Court's decision on October 15, 2025, favored Mayne Pharma, setting a precedent with significant implications for Material Adverse Change (MAC) clauses in M&A transactions.
The High Bar for Proving a MAC
In this case, Cosette attempted to terminate the deal, citing a MAC. However, the court's judgment clarified that proving a MAC requires substantial evidence, and missed financial forecasts alone are insufficient, especially when accompanied by disclaimers.
Controversial Interpretation
Here's where it gets interesting: the court's interpretation of a MAC suggests that a forecast variance is not a MAC in itself but rather evidence of an adverse change. This means that a company's actual position must be compared to its previous actual position, not to a forecast, to determine if a MAC has occurred.
And this is the part most people miss...
The court's reasoning highlights a potential pitfall for companies: if a forecast is used as evidence of a MAC, it could invalidate the disclaimer associated with that forecast. This could have far-reaching implications for how companies approach forecasting and due diligence.
Warranties and Disclaimers
The judgment also clarified that general warranties do not override specific exclusions, especially when it comes to forecast accuracy. Without a clear duty to provide continuous updates, failing to revise point-in-time forecasts does not constitute a breach of care.
Termination Rights and Bidder Conduct
The decision underscores the importance of a bidder's actions when exercising termination rights. Cosette's conduct during the first court hearing was seen as an affirmation of the deal, not a termination, which had significant implications for the outcome.
Key Takeaways
- Proving a MAC requires a high evidentiary threshold, and missed forecasts alone are not enough, especially with disclaimers.
- Warranties regarding "collation and preparation" do not guarantee forecast accuracy, and failing to update point-in-time forecasts is not necessarily a breach.
- A bidder's conduct when exercising termination rights is crucial and can impact the outcome of the deal.
This decision offers valuable insights for companies and legal professionals navigating M&A transactions, especially when it comes to MAC clauses and the potential pitfalls of relying solely on financial forecasts.
