After blocked Mayne deal, Australia M&As set for higher reverse break fees

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By Scott Murdoch

SYDNEY (Reuters) -Foreign bidders for Australian companies could be liable for higher reverse break fees if regulatory approval is not received, in the wake of the failed $434 million takeover of Mayne Pharma, lawyers said.

Treasurer Jim Chalmers blocked the takeover last week of Mayne by reluctant U.S. suitor Cosette Pharmaceuticals on the grounds of it not being in the national interest.

Cosette bid for Mayne in February but later tried to back out, citing the Australian company’s financial performance. It then threatened to close Mayne’s Adelaide manufacturing plant that employs some 200 people if the deal went ahead.

Chalmers said the decision to block the deal was in line with advice from Australia’s Foreign Investment Review Board (FIRB) that a Cosette takeover of Mayne would not adequately mitigate risks to the supply of critical medicines.

Following the Mayne saga, boards of targeted Australian companies are expected to demand tougher conditions such as higher reverse break fees and earlier regulatory clearance to avoid protracted failures, lawyers said.

“I think we will see increased debate about whether bidders should pay a reverse break fee if they don’t get regulatory approval, not just if they materially breach the agreement,” HSF Kramer partner Kam Jamshidi said.

“This has been very occasionally used here, but is a well-used feature in U.S. public deals. It allows risk associated with approvals to be allocated in part to the bidder, and also serves as a deterrent to undermining securing the approval,” Jamshidi said.

Break fees in Australia are typically paid by target companies if a deal cannot be proceeded with, and are usually set at 1% of the equity value of a transaction.

A reverse break fee is paid when the bidder walks away. In the U.S., where they are much more common, they can range from 3% to 4% or more, according to Jamshidi.

Higher reverse break fees and other conditions on foreign bidders could make it more onerous for inbound deals in Australia, which has been a fertile ground for transnational acquisitions.

INBOUND M&A INTEREST

There have been nearly $81 billion worth of announced M&A deals in Australia in 2025, with foreign bidders accounting for almost $35 billion, Dealogic data showed. The inbound interest in Australian assets is at the highest level in four years.

In light of the blocking of the Mayne deal, Australian M&A target boards could want foreign bidders to secure regulatory nods earlier to avoid deals collapsing at the end of a long process, according to MinterEllison partner Alberto Colla.

“This decision will undoubtedly reshape Australian M&A market practice for deals involving foreign suitors who need FIRB clearance,” he said.

Colla said targets could require foreign buyers to accept tighter conditions in binding agreements, including stating they would not change their intentions for the target’s business as outlined in an FIRB application or public market documents.

“The real lesson isn’t that Australia is hostile to foreign capital, it’s that using regulatory processes as a lever for collateral objectives will attract scrutiny,” said Mark Vanderneut, King & Wood Mallesons partner.

“Put in context, the market remains open, but bidders will need to be more disciplined and transparent about their regulatory posture.”

(Reporting by Scott Murdoch; Editing by Sumeet Chatterjee and Muralikumar Anantharaman)