Treading back into the dangerous land of merger arb with sprinkles of legalese, note that this trade is an inherently risky one so due diligence is required.
It might be that MYX provided Cosette projections with A$60m+ EBITDA in FY25 (not clear, consensus was $58m) and now it's A$50m, so could be close to breaching the MAE threshold. But then, the EBITDA MAC looks a bit loosely worded - which 12 months? decline versus what? - perhaps something to argue about in court.
Another precedent outside of COVID in Australia was Eclipx-McMillan Shakespeare (terminated).
I'm not sure Cosette wants a price cut, though, as a lot of times when it's buyer's remorse or they're spooked by something, they just want out (if they can, of course).
They kind of conceded, it seems. But the MAC clause was tighter - just 10% net profit decline vs previous year - and the business was much more of a mess. ECX first guided to flat results in the then current year, but the performance continued to worsen and they eventually withdrew that guidance. Actual 1H turned out to be -62%.
Then again, the principle in other countries (US/UK) is that business decline should be much more than transitory for it to trigger a MAC (e.g. not COVID or even the 2008 GFC). ECX (now FPR) eventually recovered, in fact. But it's not clear whether Australian courts would follow others or give precedence to the contractual terms (based on single 12 months results).
Yeah I think you’re right. But baffling to an extent that they should’ve gotten a glimpse of the poor Jan/Feb financials. Also v weird that they signed off on the scheme booklet a few days before termination and couldn’t quantify to management the extent of the MAC breach (?). I think they realized they would have to invoke the clause of being represented falsely in the DD process to have any sort of edge here…
Stock puking out ~5 right now. Think decent r/r here.
So now Cosette is throwing even a breach of Australian Consumer Law at MYX - does seem to desperately want out, but still I agree, not sure that it can.
Really funny now though. Seems like throw and see what sticks on the wall kinda vibes now. A little like a crazy gf who's like .... you're ___... and you retort and then she's like fine...but you_____, rinse and repeat.
While there is zero precedent for a successful MAC litigation in Australia, it is worth noting that in 2020 two deals were killed by invoking MACs: Carlyle got out of PNC and Madison got out of CML. They just didn't need to go to court.
Having said that, I think both those deals were effected by covid, and the Mayne deal explicitly excludes government action as a cause of a MAC.
Thanks for the info. Why were they not taken to court or why couldn't a settlement be reached between those parties.
Afaik in that time period, LVMH and Tiff, for e.g. closed on a lower price agreement; KKR tried to wiggle out using COVID as MAC wrt to DecoPac but that didn't work out; Fairstone and Duo Bank - COVID did not disproportionately affect the biz.
It might be that MYX provided Cosette projections with A$60m+ EBITDA in FY25 (not clear, consensus was $58m) and now it's A$50m, so could be close to breaching the MAE threshold. But then, the EBITDA MAC looks a bit loosely worded - which 12 months? decline versus what? - perhaps something to argue about in court.
Another precedent outside of COVID in Australia was Eclipx-McMillan Shakespeare (terminated).
I'm not sure Cosette wants a price cut, though, as a lot of times when it's buyer's remorse or they're spooked by something, they just want out (if they can, of course).
Eclipx-McMillan Shakespeare
Interesting one though this was never taken to court. Why didnt Eclipx sue for specific performance or was there indeed a breach of the MAC
They kind of conceded, it seems. But the MAC clause was tighter - just 10% net profit decline vs previous year - and the business was much more of a mess. ECX first guided to flat results in the then current year, but the performance continued to worsen and they eventually withdrew that guidance. Actual 1H turned out to be -62%.
Then again, the principle in other countries (US/UK) is that business decline should be much more than transitory for it to trigger a MAC (e.g. not COVID or even the 2008 GFC). ECX (now FPR) eventually recovered, in fact. But it's not clear whether Australian courts would follow others or give precedence to the contractual terms (based on single 12 months results).
Yeah I think you’re right. But baffling to an extent that they should’ve gotten a glimpse of the poor Jan/Feb financials. Also v weird that they signed off on the scheme booklet a few days before termination and couldn’t quantify to management the extent of the MAC breach (?). I think they realized they would have to invoke the clause of being represented falsely in the DD process to have any sort of edge here…
Stock puking out ~5 right now. Think decent r/r here.
So now Cosette is throwing even a breach of Australian Consumer Law at MYX - does seem to desperately want out, but still I agree, not sure that it can.
Really funny now though. Seems like throw and see what sticks on the wall kinda vibes now. A little like a crazy gf who's like .... you're ___... and you retort and then she's like fine...but you_____, rinse and repeat.
Thanks for the write up.
While there is zero precedent for a successful MAC litigation in Australia, it is worth noting that in 2020 two deals were killed by invoking MACs: Carlyle got out of PNC and Madison got out of CML. They just didn't need to go to court.
Having said that, I think both those deals were effected by covid, and the Mayne deal explicitly excludes government action as a cause of a MAC.
Thanks for the info. Why were they not taken to court or why couldn't a settlement be reached between those parties.
Afaik in that time period, LVMH and Tiff, for e.g. closed on a lower price agreement; KKR tried to wiggle out using COVID as MAC wrt to DecoPac but that didn't work out; Fairstone and Duo Bank - COVID did not disproportionately affect the biz.
I believe both acquirers were allowed to walk as the targets accepted a MAC had happened.