Federal Treasurer Jim Chalmers faces mounting pressure from merger arbitration funds regarding his recent decision on the proposed acquisition of Mayne Pharma by Cosette Pharmaceuticals. In a series of letters and statements, these funds warn that blocking the merger could destabilize Australia’s capital markets and deter foreign investors from engaging with the country.
On Friday, Chalmers stated that the takeover contradicted the national interest, citing potential job losses at Mayne’s manufacturing plant in Adelaide. Following his remarks, Mayne’s share price plummeted by 31.5 percent to $4.25 per share, while Cosette’s acquisition offer stands at $7.40 per share.
Fund managers have argued that their concerns extend beyond mere financial interests. In a letter addressed to Chalmers, Harvest Lane Asset Management Chief Investment Officer Luke Cummings and Portfolio Manager Ben Bailey emphasized the broader implications of his preliminary decision. They noted that blocking the deal could undermine the stability and integrity of the capital markets, suggesting that the potential loss of jobs at a single site does not outweigh the importance of maintaining investor confidence.
Cummings and Bailey wrote, “There is a serious risk of undermining the stability and integrity of our capital markets if the deal is blocked.” They urged Chalmers to “preserve the proper functioning and good standing of our capital markets over the regrettable potential loss of jobs.”
Concerns about precedent arise from the situation, as Harvest Lane argues that if a losing party like Cosette can simply appeal to the Treasurer to block a deal, it could set a dangerous precedent for future mergers. They criticized Cosette’s threat to close the Adelaide plant, which employs around 200 people, describing it as “economically irrational” and a “spurious and belated change in position.” Harvest Lane cautioned against falling for what they described as a dubious tactic.
The Foreign Investment Review Board (FIRB) has requested an extension of the statutory deadline for review until December 1, 2023, but the final decision rests with Chalmers. The situation has attracted further commentary from other merger arbitration funds as well.
In a similar vein, the US-based Summer Moon Capital, which has significant exposure to Mayne Pharma, issued a statement underscoring the operational viability of the Adelaide plant. They noted that Cosette is a buyer from a Five Eyes country, acquiring a pharmaceutical company without apparent national security risks.
Summer Moon Capital proposed that rather than blocking the transaction entirely, the FIRB could implement conditions to ensure the Adelaide facility remains operational for a set period while maintaining current employment levels. They warned that if contractually binding schemes can be unilaterally blocked after legal enforcement based on vague national interest concerns, rational investors may demand substantial risk premiums or choose to avoid investing in Australia altogether.
Chalmers’ decision on the Mayne and Cosette deal will not only affect the immediate stakeholders but could also have lasting consequences for Australia’s reputation as a stable environment for foreign investment. As the deadline approaches, all eyes will be on whether the Treasurer will heed the warnings from merger arbitration funds and reconsider his stance.
