All eyes across the ditch have been on the New South Wales Supreme Court's judgement in the matter of Mayne Pharma Group, which was released on 15 October 2025. The case provides useful guidance to the New Zealand courts from their Trans-Tasman counterparts where parties seek to rely on "material adverse change" ("MAC") clauses to terminate transactions.
What is a MAC?
MACs are heavily negotiated clauses which generally allow a purchaser to terminate an agreement if certain events occur, for example, an event (typically an event outside of the control of the sellers / target company) which reduces (or is reasonably likely to reduce) revenue, earnings or net tangible assets by a prescribed amount. The ability to walk away from a deal can also be used by a purchaser to seek to renegotiate the price. MACs are very common in public market transactions where a buyer will not typically have recourse to the shareholders for warranty breaches (and therefore a right to terminate for adverse events is more important), but are also often sought by buyers in private M&A deals (in particular, where there could be a lengthy period between signing and closing due to regulatory consent requirements). Whether a MAC has occurred is often a fact-specific analysis which requires courts to engage with comprehensive evidence.
Summary of the case
The case concerned a scheme implementation agreement between Cosette Pharmaceuticals (as buyer) and Mayne Pharma Group (as target company) which included a MAC clause permitting Cosette to terminate where an event or matter occurred that would result in, or would reasonably be expected to result in, at least a A$10.76 million reduction to Mayne Pharma's consolidated Maintainable EBITDA over a 12-month period, with other customary carve-outs such as for matters "fairly disclosed" in due diligence materials or matters occurring as a result of changes in law, force majeure-type events and/or and general economic conditions (not disproportionately affecting the target group).
Cosette sought to terminate the deal on the basis that the MAC was triggered due to:
- material business underperformance in FY25 Q3 (compared to historical trends and forecasts); and
- Mayne Pharma's receipt of a letter from the United States Food & Drug Administration ("FDA Letter") which related to a potentially significant regulatory matter.
Justice Black held that Cosette failed to establish that the above matters were reasonably expected to trigger a MAC on the basis that:
- a change in forecast (or shortfall of actuals as against forecasts) may be evidence of an underlying factual development that gives rise to a MAC, but it is not itself an "event, occurrence, change, circumstance or matter", and no such events had been established which would meet the threshold required to trigger the MAC;
- the argument that certain events (weak underlying demand, increases in co-pay insurance assistance program expenses, and deteriorating financial performance as compared to the historical trend of the business) triggered the MAC was "fatally" undermined by Cosette's inability to isolate those events from other general economic developments; and
- it had not proved that the changes Mayne Pharma made to its marketing strategy for the product that was the subject of the FDA Letter were adverse rather than positive. Although Cosette submitted expert evidence that the FDA Letter would have an adverse impact on sales, Justice Black noted "the calculations made by Cosette in submissions, however elaborate and ingenious, cannot raise above their lack of factual basis".
In any case, Justice Black found that Cosette had waived its alleged termination rights that subsisted at the time it entered into an amendment to the scheme implementation agreement with Mayne Pharma, as it had knowledge of the material facts underlying certain of its alleged termination rights but still elected to affirm (continue with) the agreement. Cosette also repeated its election to affirm the agreement at the court hearing for initial orders (to convene a shareholder meeting to vote on the transaction) by verbally reading its affidavit without qualification. The court was "entitled to take the Cosette Parties at their word" when they indicated (by omission) that such a right of termination did not then exist.
Justice Black noted this view was reinforced by the public nature of the scheme of arrangement, where an acquirer's choices have significant public impacts on the target company, its shareholders, employees and the communities in which it conducts business.
Relevance to New Zealand
In New Zealand, there is little judicial commentary on MACs, though there are examples of transactions where parties have sought to terminate by relying on MACs. Metlifecare was a public example during the Covid-19 pandemic of a contested attempt by the acquirer (EQT) to terminate its proposed takeover by scheme of arrangement.
EQT sought to terminate the scheme implementation agreement between the parties based on its determination that the pandemic had the potential to reduce Metlifecare's net tangible assets by at least $100 million. Metlifecare nonetheless sought initial orders to convene a scheme meeting for shareholders to vote on the proposed scheme and separately filed proceedings seeking a declaration that the agreement remained in force and an order requiring EQT to perform its obligations under the agreement. While initial orders are traditionally procedural in nature, the High Court declined to grant the orders on the basis that it could not be satisfied a scheme of arrangement remained in existence given one party had purported to withdraw from the relevant agreement. The substantive proceedings in relation to EQT's purported termination never transpired as the original agreement was terminated and EQT returned with a lower offer, which was later accepted by shareholders.
During 2020, two other scheme implementation agreements – in relation to full takeovers of Augusta Capital and Abano Healthcare Group – were also terminated in reliance of MAC clauses. Such terminations were never contested in court – rather, the takeovers were later completed at a lower price (a common outcome in these circumstances, where the acquiring party uses the potential existence of a MAC to force a re-bargain on price).
Key takeaways
Sellers should take comfort from our Australian peer court's narrow interpretation when it comes to determining the applicability of a MAC. However, buyers should be reminded that poor business performance or changing forecasts are not, in isolation, likely to trigger a MAC (or if that is the intention, that should be specifically and expressly called out). Further, the simple task of seeking a final judgement from a court on such a matter can be an expensive and time-consuming process, and so we would expect that buyers will continue to purport to exercise a MAC primarily as a tactic to re-price deals.
The case is a timely reminder that, in drafting any MAC clause, the specific trigger events should be tightly and clearly prescribed (having regard to the actual risk position of the target), capable of objective assessment and, importantly, the baseline that the MAC is to be tested against needs to be specifically outlined so that any "before and after" assessment can be properly made. We would expect any New Zealand court to have regard to the Australian court's decision in Mayne Pharma, and prevent a buyer from exercising a MAC for "buyer's remorse".
Please contact any of our Corporate partners to discuss this case or seek guidance on your proposed transactions.