Mayne disputes there has been a material adverse change, giving us a very rare M&A barney. You can picture Mayne and Cosette’s lawyers gleefully sending letters back and forth, as just another deal turned into some juicy M&A sport. Investors, as is often the case, are the losers.
You’d think a material adverse change would be pretty easy to identify – it is defined in Mayne’s 111-page scheme of arrangement, a document that would’ve been carefully negotiated and signed by both bidder and target.
The gist of it is Mayne’s maintainable earnings. If they drop by more than $10.76 million over a 12-month period (subject to a bunch of exceptions including pre-disclosed matters), it will have a material adverse change.
If the M&A barney is as simple as Mayne’s earnings falling off a cliff, then it is hard to see how Mayne isn’t guilty as charged.
Mayne reported $31 million underlying earnings before interest, tax and depreciation for the first half on February 26 (five days after signing its scheme implementation deed with Cosette). It told shareholders it “expects to grow underlying EBITDA in the second half of the 2025 financial year via revenue growth and cost leverage”.
While it’s a bit of a choose-your-own adventure outlook statement, it suggested at least $62 million EBITDA for the full year to June 30 and was a big upgrade to analysts’ forecasts. Perhaps it explained the knockout takeover bid, they thought.
Two months later, Mayne was back with new guidance of $47 million to $51 million EBITDA, or as much as a 123 per cent uplift on the prior year. While Mayne’s statement was all about growth, that earnings number was well shy of what was implied at the half-year.
Where it gets more grey – and we suspect the lawyers will have even more fun – is everything else, which includes Mayne’s run-in with the US Food and Drug Administration.
The FDA accused Mayne of downplaying risks when marketing its new “key growth” contraceptive pill Nextstellis. Mayne received the letter but judged it not serious enough to disclosure to shareholders. It told shareholders it had disclosed the letter to Cosette.
According to Mayne, Cosette is now telling the company that if you add all this together – the earnings, the FDA’s letter and some other regulatory matters – it triggers a material adverse change. As we said, Mayne disputes it.
It would be helpful to investors if Mayne released UBS-advised Cosette’s letter, but instead this company that has made poor disclosure choices in the past chose to release its own summary. Both sides declined to comment further.
What Jefferies-advised Mayne’s telling of this whole situation doesn’t mention is what’s happening in markets and deals more generally: volatility is up, uncertainty is up and confidence is down.
And that is what is impossible to ignore.
Don’t expect Cosette to admit it in the heat of M&A battle, but this is the sort of dispute you don’t see in smoother times.
When confidence is up and animal spirits are alive, a bidder like Cosette wouldn’t dream about being in this position. Triggering a material adverse change clause is rare – like once every few years in deals involving ASX300 companies such as Mayne.
But thanks to Trump, deals that were alive only a few months ago are dropping like flies.
Takeover buddies like Mayne and Cosette are now fighting M&A wars.
