Cost savings must count under takeover deed’s material adverse change test, judges find
The NSW Court of Appeal rejected Cosette Pharmaceuticals’ challenge over its bid to exit Mayne Pharma takeover, holding that cost savings undercut its material adverse change claim.
In Cosette Pharmaceuticals, Inc v Mayne Pharma Group Limited [2026] NSWCA 215, handed down 14 October 2026, the court unanimously dismissed Cosette’s appeal and ordered it to pay Mayne Pharma’s costs of the appeal. It upheld a Supreme Court ruling that Cosette did not validly terminate the deal.
In February 2025, Cosette signed a scheme implementation deed to acquire Mayne Pharma for $7.40 a share through a scheme of arrangement. The deed could entitle Cosette to terminate on a material adverse change: an event with an actual or reasonably expected effect of reducing Mayne Pharma’s maintainable earnings before interest, tax, depreciation, and amortisation (EBITDA) by at least $10.76 million over 12 months. After weak third-quarter sales, Cosette issued a notice alleging such a change in May 2025, then a termination notice in June.
Both sides’ accounting experts adjusted the sales shortfall for operating cost savings. Cosette accepted that once those savings counted, the shortfall fell below the threshold. It argued that the court should disregard the savings because they flowed from Mayne Pharma’s discretionary business decisions, such as cutting staff incentives.
The court rejected that argument, finding that nothing in the deed treated savings from discretionary decisions differently from other financial consequences. Agreeing with Mayne Pharma, the court said that “the performance of any business is the product of myriad discretionary decisions.” It held that the test required counting all of an event’s financial consequences.
The court also upheld the finding that Cosette elected to affirm the deed. At a hearing on 15 May 2025, Cosette supported Mayne Pharma’s application to convene a shareholder meeting on the scheme, without qualifying its own supporting affidavit. Cosette conceded that it already knew the facts behind the notice it issued two days later.
Cosette argued that it then had only a right to serve a notice that could lead to termination. The court found that serving the notice lay in Cosette’s hands, so backing the scheme while reserving a right to end the deal remained inconsistent.
Cosette’s misleading or deceptive conduct claim also failed. It had alleged that Mayne Pharma represented that it expected its EBITDA for the 2025 financial year “would be” $69.8 million. On appeal, it sought to recast that as an expectation “in the order of” that figure. The court held that Cosette, having kept to its pleaded wording at trial, could not now run a broader case.
