In the matter of Mayne Pharma Group Limited

[2025] NSWSC 513

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Mayne Pharma Group Limited [2025] NSWSC 513

Hearing dates:

15 May 2025

Date of orders:

15 May 2025

Decision date:

21 May 2025

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Order convening scheme meeting and associated orders made.

Catchwords:

CORPORATIONS – Arrangements and reconstructions – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders convening meeting of members to consider and, if thought fit, to agree to proposed scheme of arrangement – Whether requirements to order scheme meeting are satisfied.

Legislation Cited:

- Supreme Court Corporations Rules 1999 (NSW) r 3.4

- Corporations Act 2001 (Cth), ss 411, 1319

Cases Cited:

- Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15

- F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69

- Re Absolute Equity Performance Fund Ltd [2022] FCA 933

- Re Ansararda Group Ltd [2024] NSWSC 411

- Re APN News and Media Ltd (2007) 62 ACSR 400

- Re Ardent Leisure Ltd [2018] NSWSC 1665

- Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40

- Re Asaleo Care Ltd [2021] FCA 406

- Re CSR Ltd (2010) 183 FCR 358; [2010] FCAFC 34

- Re DWS Ltd (2020) 148 ACSR 616; [2020] FCA 1590

- Re Ellerston Global Investments Ltd [2020] NSWSC 879

- Re ELMO Software Pty Ltd [2023] NSWSC 12

- Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742

- Re Intega Group Ltd [2021] NSWSC 1434

- Re InvoCare Ltd [2023] NSWSC 1180

- Re Isentia Group Ltd [2021] NSWSC 910

- Re Kidman Resource Ltd (2019) 139 ACSR 112; [2019] FCA 1226

- Re McGrath Ltd [2024] NSWSC 555

- Re MyDeal.com.au Ltd [2022] NSWSC 1094

- Re Orion Telecommunications Limited [2007] FCA 1389

- Re Pendal Group Ltd [2022] NSWSC 1648

- Re Staging Connections Group Ltd [2015] FCA 1012

- Re TPG Telecom Ltd [2020] NSWSC 772

- Re Villa World Ltd (2019) 139 ACSR 550; [2019] NSWSC 1207

- Re Vocus Group Ltd [2021] NSWSC 630

- Re Wridgways Australia Ltd [2010] FCA 1187

Category:

Principal judgment

Parties:

Mayne Pharma Group Limited (Plaintiff)

Representation:

Counsel:
Mr M Izzo, Mr T O’Brien (Plaintiff)
Ms T Wong (Cosette Australia Bidco Pty Ltd, Cosette Pharmaceuticals Holdings Inc)

Solicitors:
Gilbert & Tobin (Plaintiff)
Corrs Chambers Westgarth (Cosette Australia Bidco Pty Ltd, Cosette Pharmaceuticals Holdings Inc)

File Number(s):

2025/129293

Judgment

1. By Originating Process filed on 4 April 2025, the Plaintiff, Mayne Pharma Group Limited (“MPG”) applies for orders under ss 411 and 1319 of the Corporations Act 2001 (Cth) (“Act”) relating to a proposed scheme of arrangement and associated orders.

2. By way of background, MPG is an Australian public company listed on the Australian Securities Exchange (“ASX”). Its business is focused on pharmaceuticals, its headquarters is North Carolina in the United States of America, and it has significant business presence in the United States and Australia. The proposed scheme provides for the acquisition of all of MPG’s ordinary shares by Cosette Australia Bidco Pty Ltd (“Cosette Sub”), which is ultimately owned by Cosette Pharmaceuticals Holdings, Inc. (“Cosette Holdings”). Cosette Holdings is in turn jointly owned and controlled by Avista Capital Holdings LP (“Avista”) and Hamilton Lane Advisors LLC (“Hamilton”). Under the proposed scheme, MPG shareholders will be paid AU$7.40 per share they own and the maximum scheme consideration payable by Cosette Sub will be AU$614,933,421.40.

3. I made the orders sought by MPG at the conclusion of the hearing on 15 May 2025. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Izzo and Mr O’Brien who appeared for MPG in this judgment.

Affidavit and other evidence

4. MPG reads the affidavit dated 4 April 2025 of Ms Alexandra Whitby, a solicitor acting for it, which exhibits a company search for MPG and an announcement of the proposed scheme made by MPG to ASX.

5. MPG also reads the affidavit dated 13 May 2025 of Ms Kimberly Parker, the Executive Vice President, General Counsel, of MPG. Her affidavit addresses, inter alia, break fees payable in respect of the proposed scheme; the interests of MPG’s directors; the proposed treatment of incentive securities issued to employees of MPG including options, performance rights, restricted stock units and loan shares; verification of the information in the scheme booklet; the conduct of the proposed scheme meeting; and consents of the proposed chair and alternative chair of the scheme meeting.

6. MPG also reads an affidavit dated 14 May 2025 of Mr Adam Laura, also a solicitor acting for it, which addresses, inter alia, the lodgement of the scheme booklet with the Australian Securities and Investments Commission (“ASIC”), the proposed despatch of the scheme booklet to MPG shareholders, and proposed inbound and outbound calls scripts for communications with MPG shareholders. By his second affidavit, dated 15 May 2025, Mr Laura addresses an issue arising from correspondence that MPG received from the United States Food and Drug Administration (“FDA”) on 28 April 2025 and refers to subsequent correspondence between ASX and MPG concerning a price query made by ASX and MPG’s response and to the release by MSG of an ASX announcement by which it responded to "speculation" as to the FDA’s letter.

7. By an affidavit dated 12 May 2025, of Dr Serge Ilin-Schneider, who is the Senior Vice President, Corporate Development and General Counsel of Cosette Pharmaceuticals, Inc. (“Cosette”), addresses, inter alia, the Deed Poll made by Cosette and Cosette Sub, funding arrangements for the scheme consideration and verification of the Cosette Information (as defined) in the scheme booklet.

8. MPG also tendered a letter from ASIC which, in common form, reserved its position as to s 411(17)(b) of the Act to the second Court hearing, and indicated that it did not currently propose to appear to make submissions or intervene to oppose the scheme at the second Court hearing.

Applicable principles and general matters relevant to the Court’s determination whether to convene the scheme meeting

9. The Court’s role at the first Court hearing in respect of a scheme is to determine, in the exercise of its discretion, whether to approve the convening of a scheme meeting and the explanatory statement if it is satisfied of several matters, namely that the plaintiff is a Pt 5.1 body; the proposed scheme is an “arrangement” within the meaning of s 411 of the Act; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the proposed scheme and explanatory statement, to make submissions and has had 14 days’ notice of the proposed hearing date of the first Court hearing; the procedural requirements under the Supreme Court (Corporations) Rules 1999 (NSW) (“Rules”) have been met; and there is no apparent reason why the scheme should not, in due course, receive the Court’s approval if the necessary majority of votes is achieved: Re Orion Telecommunications Limited [2007] FCA 1389 at [5]; Re Staging Connections Group Ltd [2015] FCA 1012 at [19]; Re Wridgways Australia Ltd [2010] FCA 1187 at [30]; Re Ellerston Global Investments Ltd [2020] NSWSC 879 at [25]-[26]; Re Vocus Group Ltd [2021] NSWSC 630 at [12].

10. The Court will not ordinarily summon a scheme meeting unless the scheme is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the Court would be likely to approve it. The Court will consider whether the proposed scheme is fit for consideration at the proposed scheme meeting, in the sense that it is of such a nature and cast in such terms that, if it achieves the statutory majority at the meeting, the Court would be likely to approve it on the hearing of a petition which is unopposed, and that members are to be properly informed as to the nature of the scheme before the scheme meeting: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 504; [1993] HCA 15; Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44], cited with apparent approval in Re CSR Ltd (2010) 183 FCR 358; [2010] FCAFC 34 at [58]; Re InvoCare Ltd [2023] NSWSC 1180 at [16]-[17]; Re Absolute Equity Performance Fund Ltd [2022] FCA 933 at [18]-[22].

11. Each of the preconditions to the exercise of the Court’s discretion in s 411 of the Act is satisfied in this case. MPG is a company registered under the Act and a Pt 5.1 body. The proposed scheme is an “arrangement” within the scope of s 411 of the Act where it involves the acquisition of the shares in MPG in return for consideration being paid to its shareholders. There is no reason to doubt that the scheme is bona fide and properly proposed, where it provides for the acquisition of shares in MPG. The MPG directors have unanimously recommended that MPG shareholders vote in favour of the scheme, in the absence of a superior proposal, and subject to the independent expert continuing to conclude that the scheme is in the best interests of MPG shareholders.

12. The independent expert, Deloitte, has also expressed the opinion that the scheme is fair and reasonable and in the best interests of MPG’s shareholders in the absence of a superior proposal, where it assessed the market value of MPG shares as between $6.60 to $7.98, and the scheme consideration of $7.40 falls within this range. Mr Izzo fairly recognises that that value assessment was subject to the AUD to USD exchange rate, but that exchange range would need to fall to approximately $0.557 for the scheme consideration to cease being fair, and such an exchange rate has not occurred since the early 2000s. Immediately before the first Court hearing, the exchange rate was $0.64, and the scheme remained fair and reasonable on the expert’s assessment.

13. ASIC has here had a reasonable opportunity to examine the proposed scheme and scheme booklet and to make submissions; it has had the necessary notice of this hearing; and, as I noted above, it has indicated that it does not currently propose to appear to make submissions or intervene to oppose the scheme at this hearing. The relevant procedural requirements under the Rules have generally been met, and I will relieve MPG from compliance with Rule 3.4 of the Rules on the basis that an announcement will be published on its website.

Additional matters

14. Mr Izzo draws several additional matters to the Court’s attention concerning the exercise of its discretion.

15. First, Mr Izzo notes that, by clause 8.4 of the scheme, MPG shareholders will be deemed to give a warranty to the effect their shares are fully paid, free from all security interests of third parties and that the shareholder has full power to sell and transfer their shares. The deemed warranty is properly disclosed in the scheme booklet, including in section 6.8. Mr Izzo submits, and I accept, that the case law recognises the legitimacy of this provision where it is appropriately disclosed: Re APN News and Media Ltd (2007) 62 ACSR 400 at [57]-[63]; Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26]; Re Intega Group Ltd [2021] NSWSC 1434 at [24].

16. Second, in order to give effect to the scheme, MPG will put in place arrangements to deal with existing equity incentive plans, which are described in Ms Parker’s affidavit. Mr Izzo notes that MPG Performance Rights granted to employees under the Mayne Employee Securities Incentives Plan (including to Mr Shawn O’Brien, the Managing Director and CEO of MPG) will vest on a change of control and entitle the holder to receive one MPG share for each MPG Performance Right, which will be transferred to them immediately prior to the Effective Date of the scheme and acquired by Cosette Sub under the scheme; and relevant holders will be entitled to participate in, but not vote on, the scheme. Mr Izzo also addresses the treatment of MPG Restricted Stock Units (some of which are also held by Mr O’Brien), which will also vest on a change of control, so as to entitle the holder to receive one MPG share for each MPG Performance Right, which will also be transferred to the relevant holders immediately prior to the Effective Date of the scheme and acquired by Cosette Sub under the scheme. The relevant holders will also be able to participate in, but not vote on, the scheme. Mr Izzo notes that the MPG board has exercised its discretion to, subject to the scheme becoming effective, determine that all MPG Options will lapse in accordance with their terms immediately prior to the Effective Date of the scheme, so there will be no outstanding MPG Options on implementation of the scheme. MPG also has on issue 968,597 MPG Loan Shares, which will be able to vote at the scheme meeting. The MPG board has determined that these will be forfeited in satisfaction of the corresponding loan amount outstanding immediately prior to the Effective Date of the scheme since they do not meet the relevant vesting conditions, so there will be no outstanding MPG loan shares on implementation of the scheme. Mr Izzo submits, and I accept, that benefits of the kind to be received by shareholders who also hold performance rights do not create the need for a separate voting class at the scheme meeting: Re ELMO Software Pty Ltd [2023] NSWSC 12 at [25] (“ELMO”); Re Ansararda Group Ltd [2024] NSWSC 411 at [20].

17. Mr Izzo also points out that, as I noted above, Mr O’Brien will have performance rights and Restricted Stock Units vest if the scheme is approved and he will be entitled to a retention bonus of US$468,750, to be paid in two equal instalments on the closing of the transaction and 6 months later if he remains employed by MPG (or if his role is made redundant or terminated without cause). Notwithstanding this interest, the other MPG directors have indicated they consider that it is appropriate for Mr O’Brien to make a recommendation given his knowledge of the business. I accept that it is open to Mr O’Brien to make a recommendation concerning the scheme where his interests arising from these matters is sufficiently disclosed: Re Kidman Resource Ltd (2019) 139 ACSR 112; [2019] FCA 1226 at [115]; Re DWS Ltd (2020) 148 ACSR 616; [2020] FCA 1590 at [41]-[49]; Re Pendal Group Ltd [2022] NSWSC 1648 at [25]; Re McGrath Ltd [2024] NSWSC 555 at [25].

18. Third, Mr Izzo addresses the questions of performance risk and funding. He recognises that Cosette Sub is a special purpose entity created for the purpose of acquiring the ordinary shares in MPG, and points to evidence led by MPG, in Dr Ilin-Schneider’s affidavit, concerning Cosette Sub’s ability to fund the cash components of the scheme consideration, and also notes that the information as to that matter in section 8.2 of the scheme booklet which has been verified. That evidence addresses the issue noted in paragraph 28(b) of Practice Note SC Eq 4, which recognises that:

“Where a special purpose vehicle with minimal assets is to acquire securities of substantial value under a scheme, a risk of a scheme not completing is likely to be material to securityholders, irrespective of the fact that their securities are not transferred to that special purpose vehicle until the consideration is paid. Disclosure of such a risk is also important to maintaining a fully informed market. Evidence should be led at the first Court hearing of the availability of the funding or other financial support on which the special purpose vehicle will rely to complete the scheme.”

19. Mr Izzo points out that it is anticipated that the maximum cash consideration payable by Cosette Sub will be AU$614,933,421.40, being approximately US$394 million (based on an AUD to USD exchange rate of $0.64), which will be funded by the Cosette Group from existing cash reserves, amounting to approximately US$52.5 million; from equity financing, relying on legally binding equity commitment letters with funds managed by Avista and Hamilton Lane under which they have irrevocably committed to providing to Cosette (or Cosette Sub as applicable) US$75 million in total at or before one business day prior to when the scheme consideration is payable; and from debt, where relevant debt commitments are subject to customary conditions precedent including no material adverse change, the scheme becoming effective and the completion of the equity financing. I am satisfied that the evidence led by MPG as to Cosette Sub’s funding arrangements sufficiently addresses the concerns which would otherwise arise where Cosette Sub is a special purpose company that could not pay the scheme consideration from its own resources.

20. Mr Izzo also notes that cl 5 of the scheme adopts the conventional mechanism of making the transfer of MPG shares to Cosette Sub conditional on the payment of the total consideration into a trust account with an Australian bank, and that Cosette Sub and Cosette have given a Deed Poll in favour of MPG shareholders. I accept that these are well-established means of properly managing performance risk in these circumstances: ELMO at [27]-[28].

21. Fourth, Mr Izzo addresses the questions of exclusivity. He points out that the Scheme Implementation Deed (“SID”) contains customary deal protection mechanisms, including “no shop”, “no talk” and “no due diligence” obligations. The “no talk” and “no due diligence” obligations are subject to a fiduciary carve out. I accept that these exclusivity provisions are in common form and are prominently disclosed in the scheme booklet. I also accept that exclusivity provisions in this form are now commonplace in schemes of arrangement and are not inconsistent with the Takeovers Panel’s guidance as to “deal protection”: Re Villa World Ltd (2019) 139 ACSR 550; [2019] NSWSC 1207 at [23] (“Villa World”). The exclusivity provisions here apply in the “Exclusivity Period” which is defined in the dictionary of the SID to be the earlier of: (a) the termination of the SID; (b) the “End Date”, being 9 months after the SID unless agreed; or (c) the “Effective Date”, being the date when the scheme becomes effective. The Court is concerned to ensure that any exclusivity period should be for no more than a reasonable period, capable of precise ascertainment; an exclusivity clause directed at dealing with an unsolicited alternative proposal should be subject to a fiduciary carve out; and the provisions should be clearly disclosed in the explanatory statement sent to shareholders: Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9]; Re TPG Telecom Ltd [2020] NSWSC 772 at [22]; Re Isentia Group Ltd [2021] NSWSC 910 at [23] (“Isentia”); Re Asaleo Care Ltd [2021] FCA 406 at [55]. I accept that exclusivity periods of 9 months have previously been accepted in comparable transactions: ELMO at [29]; Re MyDeal.com.au Ltd [2022] NSWSC 1094 at [38].

22. Fifth, Mr Izzo addresses the questions of break fees in respect of the scheme. He points out that, under cl 13 of the SID, MPG must pay Cosette the “Mayne Break Fee” of AU$6,718,788.50 in specified circumstances. That break fee is a little more than 1% of the total equity value of MPG, being 1.09% of the scheme consideration. This matter is disclosed in sections 5 and 11.10(b) of the scheme booklet. I accept that break fees of this kind are common features in schemes of arrangement and will be permitted where the amount of the break fee is not such that it could influence voting at the meeting to be convened and there are no other unusual circumstances, and the fact the break fee is a fraction of a percent in excess of the Takeover Panel’s guidelines is not material for present purposes: Villa World at [24]; Isentia at [20]-[22].

23. Sixth, Mr Izzo addresses the question of the despatch of scheme documents to MPG shareholders, which is conventional. Seventh, Mr Izzo addresses proposed shareholder communications, which MPG draws to the Court’s attention, without seeking approval for them. No matters arose from those communications that gave rise to concern.

19. Eighth, Mr Izzo also addresses the issue arising from correspondence that MPG received from the FDA on 28 April 2025, to which I referred above. The explanatory booklet for the scheme has been amended, in a relatively minimalist way, to address that issue, primarily by cross reference to MPG’s response to the ASX price query and to MPG’s ASX announcement in response to the "speculation" as to the FDA's letter. I recognise that, on one view, that information is now in the public domain, and will likely have been absorbed by, at least, sophisticated shareholders who are trading in MPG shares and is likely incorporated in the price at which MPG shares are traded. However, the limited details of this matter provided in the scheme booklet has the consequence that the reader of the explanatory booklet, who is not already aware of these matters by having accessed the information released to ASX, and does not now make any further inquiry to access that information on ASX, will not know what is the content of the FDA letter, the ASX price query or MPG’s response to it. I also recognise that the explanatory booklet notes that the Cosette Group is considering these matters, including in relation to their impact on MPG and its business and operations. That disclosure will also be less meaningful to a reader of the explanatory booklet who does not already know these matters, who will not know what the Cosette Group is considering.

20. I have borne these matters in mind, and I am conscious that it is MPG’s, not the Court's, role to draft the explanatory booklet. Plainly, an alternative drafting approach would have been available, which would have described at least the objective subject matter of the FDA letter and the steps which MPG was taking in response to that letter, which are already addressed in MPG’s announcement to ASX. However, it is apparent from MPG’s response to the ASX price query that it takes the position that this matter is not material to the price of its shares, and the evidence in this application does not allow an assessment of the correctness or otherwise of that position, and the independent expert has confirmed this matter does not affect his opinion as to the scheme. On balance, I am not persuaded that I should decline to convene the scheme meeting by reason of the limited disclosure of this matter, on the premise that MPG’s contention that it is not material is correct. No doubt, as events develop, it may become clearer whether any supplementary disclosure is required in respect of this matter.

21. These matters, separately and together, give rise to no reason not to convene the scheme meeting.

Exercise of the Court’s discretion whether to convene the scheme meeting

27. Returning now to the wider issues relevant to the exercise of the Court’s discretion whether to convene the scheme meeting, the independent expert expresses the opinion that the scheme is fair and reasonable and therefore in the best interests of MPG shareholders, in the absence of a superior proposal. MPG’s board has unanimously recommended the shareholders vote in favour of the scheme in the absence of a superior proposal and provided that the independent expert does not withdraw its conclusion that the scheme is in the best interests of MPG’s shareholders. The disclosure in the scheme booklet has been verified and I have addressed the issue arising from the FDA letter above. I am satisfied that there is otherwise nothing in the terms of the scheme or in its effect on MPG’s shareholders that would warrant the Court declining to approve the scheme at the second Court hearing, if it receives the statutory majorities required by s 411(4)(a)(ii) of the Act at the scheme meeting.

Orders

28. For these reasons, I made the orders sought by MPG at the conclusion of the first Court hearing on 9 May 2025.

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Decision last updated: 23 May 2025