Cosette can get FIRB(ed)

Foreign Investment Review Board (FIRB) approval is often a black box process when it comes to approving or denying takeover transactions. The procedures and reasonings behind individual cases are not generally available to the (investing) public. It is difficult to be confident to the point of certainty that a decision will land one way or another ahead of time (which, I admit, can be said about most regulatory processes when it comes to change of control transactions).

Following its recent bid for Santos Limited (STO.ASX), ADNOC faced daily speculation as to whether FIRB would allow or block the deal, but when ADNOC ultimately walked from the potential transaction the FIRB question remained unanswered. 

Occasionally, FIRB are known to slow walk bidders to the point of frustration and capitulation. Just ask Beijing Energy International Holdings how they’re doing with a now 18-month long process of trying to acquire TPC Consolidated Limited (TPC.ASX) with no ETA on a decision in sight.

Most of the time though, particularly where Five Eyes nations are involved, FIRB is no formidable roadblock to a deal completing. In that light, our interest was piqued reading recent media commentary that South Australian Premier, Peter Malinauskas, would ask FIRB to block Cosette’s acquisition of Mayne Pharma Group Limited (MYX.ASX) to preserve some 200 jobs at Mayne’s Salisbury manufacturing facility.

As a refresher, Cosette agreed to acquire Mayne back in February this year. It then appeared to get cold feet and tried to renege on the deal, citing that a material adverse change had occurred to the Mayne Pharma business. Mayne said no such adverse change had occurred, and the two parties are currently in front of Justice Black in the Supreme Court of New South Wales to put an end to the squabble in what will be a landmark ruling of its kind.

Luke shared our view on Cosette’s case back in May. In short, it’s not much of a case. Having sat in the Supreme Court myself for the hearings thus far it’s only become more apparent to us that Cosette are up the proverbial creek without a paddle.

Following the change of heart on the deal in May, Cosette conveniently let FIRB know in June that it would instead look to close the Salisbury plant if forced to follow through with its acquisition of Mayne, reversing its earlier representations. As the residents of SA might expect, Premier Malinauskas has rightly sought to intervene.

Cosette is a portfolio company of Private Equity backers Avista Healthcare and Hamilton Lane (not to be confused with Harvest Lane!). Private Equity is inherently commercially driven. There is a distinct lack of commercial logic in closing Salisbury down.

In Mayne’s FY25 Statutory Accounts, Salisbury, referred to as the International segment, delivered a direct contribution to Mayne’s result of $7.4m, slightly down on FY24’s $9m, which is inclusive of its own divisional finance function, HR, and IT expenses. The plant derives more than half of its revenue from contract manufacturing, with the balance split between global exports and domestic supply of products.

In 2022, Mayne sold off its US CDMO business at a 16x adjusted EBITDA multiple. The Australian PP&E is on the books at $70m, inclusive of the freehold land on which the plant sits, with recent investment of as much as $17.8m to more than double encapsulations and blister packaging capacity, and drive increased earnings from FY26 onwards. The prospects for Salisbury have dramatically improved coming out of the capital investment stage.

Hell, Mayne even won an award for the South Australian Business of the Year in 2025.

All of this is to say that it is non-sensical to suggest that Cosette’s only option is to close the plant down. It is profitable on a standalone basis and demonstrably worth something, and Private Equity is not in the business of turning their nose down at a dollar. Salisbury is not inextricably linked to Mayne’s product portfolio with less than a third of its revenue derived from domestic product sales. As a contract manufacturer and global exporter, it is perfectly reasonable for it to operate under another owner.

If Premier Malinauskas feels so strongly about preserving 200 jobs in South Australia, perhaps his government may wish to buy the plant for itself. If not, we are certain there will be no shortage of other bidders. A sale would give Cosette (as the new owner of Mayne Pharma) breathing room from the whopping debt load and consequent pressure it is presumably enduring from its now increasingly reticent lenders. It would also give them a taste of what it’s like being on the sell side of an Australian transaction. Try that on for size.

But even if the plant were to be closed, what purpose does FIRB have blocking this deal on that basis? In the context of billions of dollars of global exports of pharmaceutical products, Salisbury is but a rounding error of contribution. The buyer is domiciled in a Five Eyes nation. Were it not for everything else attached to Mayne, the Salisbury plant wouldn’t even come close to hitting the $339m monetary threshold where FIRB’s purview over a transaction kicks in (and if Cosette were to argue otherwise it only further proves a lack of commercial logic to close it down!).

It’s not directly involved in any nationally sensitive industry (media, agribusiness, national security) and whilst we certainly don’t suggest the loss of 200 jobs isn’t a regrettable outcome, what is the national (not state) interest in blocking this deal?

What message does that send more broadly to foreign investors? FIRB’s most recent quarterly report showed the US alone accounted for a whopping $14.7b of foreign commercial investment, 26% of the total $54.7b in just three months. Synergies, restructures, and efficiencies are all motivators of any deal. Blocking Cosette’s acquisition of Mayne on the basis that it is not in the national interest is tantamount to telling the world that Australia is well and truly closed for business!

The statutory deadline for FIRB to make a ruling on Cosette’s offer was to expire on Friday 26 September, but instead FIRB requested an extension to 31 October. Having had three months to consider Cosette’s submission since June, it’s unlikely due to needing more time to assess whatever Cosette’s proposal for Salisbury was.

The extension to 31 October is better seen as a desire to allow the court process to play out (and based on our observations thus far, that’s not exactly going well for Cosette) rather than pre-empt it.

In which case, FIRB most likely see Cosette’s intentions for what they are. Illogical and economically irrational. If Mayne is to prevail in court, as we currently expect they will, it’s hard to see FIRB standing in the way thereafter.