A group of merger arbitration funds has raised serious concerns regarding Federal Treasurer Jim Chalmers‘ recent comments on the potential acquisition of Mayne Pharma by Cosette Pharmaceuticals. The funds argue that his stance could destabilize Australia’s capital markets and deter foreign investment. Chalmers stated that blocking the takeover was in the national interest, citing threats from Cosette to close Mayne’s manufacturing plant in Adelaide, which resulted in a significant drop in Mayne’s shares, falling by 31.5% to $4.25 per share. The proposed acquisition price set by Cosette is $7.40 per share.
In a letter addressed to Chalmers, Harvest Lane Asset Management executives Luke Cummings and Ben Bailey warned of the broader implications of his decision. They urged the treasurer to reconsider, stating that blocking the deal could undermine the stability and integrity of Australia’s capital markets, a concern that extends beyond the immediate transaction.
Cummings and Bailey wrote, “There is a serious risk of undermining the stability and integrity of our capital markets if the deal is blocked. We respectfully submit that there is a far greater national interest at stake in preserving the proper functioning and good standing of our capital markets over the regrettable potential loss of jobs at a single manufacturing site in South Australia.”
The concerns from Harvest Lane center on the precedent that could be set if a bidder like Cosette can influence a decision simply by threatening job losses. They described this as a “dubious tactic” that could encourage future bidders to leverage similar threats. The fund’s letter highlighted the economically irrational nature of Cosette’s claims about closing a profitable facility, emphasizing that it is inconceivable for a company to shut down operations without first considering alternative options, such as a sale.
The Foreign Investment Review Board (FIRB) has requested an extension for its review process until December 1, 2023. Nonetheless, Chalmers will have the final say on the deal.
Another merger arb fund, Summer Moon Capital, which has considerable exposure to Mayne Pharma, echoed similar sentiments in its statement. They noted that the Adelaide plant is both profitable and operationally sound. Furthermore, the firm pointed out that Cosette is a buyer from a Five Eyes nation, acquiring a pharmaceutical company that poses no apparent national security risks.
Summer Moon Capital suggested that rather than blocking the transaction, the FIRB could impose conditions to ensure that the Adelaide facility remains operational for a defined period and that employment levels are maintained. They cautioned that if contractually binding agreements can be unilaterally blocked due to vague national interest concerns, rational investors might demand higher risk premiums or choose to invest elsewhere, which could have long-term effects on Australia’s attractiveness as an investment destination.
The situation underscores a growing tension between national interest claims and the need for a stable investment environment. As the review progresses, stakeholders will watch closely to see how Chalmers balances these competing priorities, especially given the potential impact on the broader market and investor confidence in Australia.
