Discontinued Operations and Disposal Groups

3 Months Ended

Mar. 28, 2025

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure

3. Business Combination and Divestiture

Proposed Business Combination with Endo

On March 13, 2025, the Company entered into a Transaction Agreement (as amended on April 23, 2025) with Endo, Inc., a Delaware corporation (“Endo”) and Salvare Merger Sub LLC, a Delaware limited liability company and the Company’s wholly owned subsidiary (“Merger Sub”). The Transaction Agreement provides, among other things, and subject to the satisfaction or waiver of the conditions set forth therein, that (a) the Company’s memorandum and articles of association will be amended by means of a scheme of arrangement (“Articles Scheme Amendment”) under the Companies Act 2014 and shareholder approval; (b) the Company’s memorandum and articles of association will be further amended by shareholder approval following the Articles Scheme Amendment (together with the Articles Scheme Amendment, the “Articles Amendments”); and (c) Merger Sub will merge with and into Endo (the “Business Combination”), with Endo surviving the Business Combination as a wholly owned subsidiary.

As a result of the Business Combination, at the merger effective time, each share of Endo common stock will be cancelled and converted into the right to receive a number of ordinary shares of Mallinckrodt (such number to be determined in accordance with the terms of the Transaction Agreement) and cash consideration (such cash consideration for all shares of Endo common stock to be $80.0 million in the aggregate (subject to potential increase)) (together, the “Transaction Consideration”). The exchange ratio will be such that upon completion of the Business Combination, former shareholders of Endo are expected to own 49.9%, and the shareholders of Mallinckrodt are expected to own 50.1%, of the outstanding Mallinckrodt ordinary shares.

The Company is required to pay Endo a termination fee of $80.2 million if the Transaction Agreement is terminated under certain circumstances, including (i) by Endo if the Company’s Board of Directors (“Board”) has made an adverse change to its recommendation that the Company’s shareholders vote in favor of the Transaction or if the Company has willfully breached its covenant not to solicit competing proposals; or (ii) if the Transaction Agreement is terminated under certain circumstances, a competing proposal for the acquisition of the Company is announced, and within 12 months of the termination, a competing proposal for the Company is consummated or the Company enters into a definitive agreement providing for a competing acquisition proposal. Endo is required to pay the Company a termination fee of $83.0 million if the Transaction Agreement is terminated under similar circumstances, as applicable to Endo. Additionally, the Company is required to pay Endo a termination fee of $30.8 million if either party terminates the Transaction Agreement in a situation where the Company’s shareholders do not approve the Transaction but Endo shareholders have approved the Transaction, while Endo is required to pay the Company a termination fee of $31.9 million in a situation where Endo’s shareholders do not approve the Transaction but the Company’s shareholders have approved the Transaction.

During the three months ended March 28, 2025, the Company recorded $20.5 million of legal, financial, and other advisory and consulting expenses, which primarily relate to shareholder matters, integration planning, and regulatory costs associated with the Business Combination.

Therakos Divestiture

On November 29, 2024, the Company completed the sale of the Therakos business to affiliates of CVC Capital Partners IX (“Therakos Divestiture”) for total cash consideration of $887.6 million, which amount is net of preliminary purchase price adjustments, including an adjustment based on estimated net working capital at close. The Company recorded $6.2 million for the estimated final working capital settlement for the Therakos Divestiture within other accrued liabilities in the unaudited condensed consolidated balance sheet as of March 28, 2025. The Company anticipates finalizing the working capital settlement during 2025. As a result, the total cash consideration is expected to be $881.4 million, net of the estimated final working capital settlement. On December 6, 2024, the Company used the proceeds from the Therakos Divestiture to mandatorily prepay the First-Out Takeback Term Loan in full, partially prepay the Second-Out Takeback Term Loan, and partially redeem the Takeback Notes, which are each defined and further described in Note 11.

Transition Services Agreement

In connection with the Therakos Divestiture, the Company entered into a transition services agreement (“TSA”) effective upon closing to provide certain business support services generally for up to 18 months after the closing date or a longer period for certain services. These services include, but are not limited to, information technology, procurement, distribution, logistics and order to delivery, compliance, accounting, finance, and administrative activities. Revenue associated with the TSA is recorded within other (expense) income, net, and expenses associated with servicing the TSA are recorded within their natural expense classification, respectively, on the unaudited condensed consolidated statement of operations. Net revenue under the TSA was $3.0 million during the three months ended March 28, 2025. There was no comparable TSA net revenue during the three months ended March 29, 2024.

Transaction Incentive Plan

On February 2, 2024, the Board adopted a Transaction Incentive Plan (as amended on August 4, 2024 and December 2, 2024, the “A&R TrIP”), which is intended to compensate designated Mallinckrodt executive officers and directors with bonus payments to be made upon the consummation of qualifying strategic transactions and dispositions (each, a “Qualifying Transaction”). Each bonus payment earned under the A&R TrIP will be generally delivered 50% in connection with closing of the applicable Qualifying Transaction and 50% on the earlier of (a) December 31, 2026 or a qualifying significant event, as defined in the A&R TrIP, and (b) a significant asset transaction, as defined in the A&R TrIP (“Final Payment Date”); provided, however that in the event that a Qualifying Transaction closes following a qualifying significant event or significant asset transaction, 100% of the applicable bonus payment earned with respect to such Qualifying Transaction generally will be paid in connection with closing of such Qualifying Transaction or, if later, when the associated proceeds are received.

Business Combination A&R TrIP

The Business Combination is expected to qualify as a qualifying transaction and a qualifying significant event under the A&R TrIP. Therefore, the Company currently expects the Final Payment Date to be accelerated upon consummation of the Business Combination. In accordance with the A&R TrIP and subject to the finalization of the Transaction Consideration, the Company expects to make payments to participants in the A&R TrIP within 30 days of closing the Business Combination. As the Business Combination is not viewed as probable until it occurs, the Company did not record any expense related to the A&R TrIP associated with the Business Combination during the three months ended March 28, 2025.

Therakos A&R TrIP

Subject to the finalization of the purchase price, the Company will make payments to participants of approximately $16.4 million if the Final Payment Date is December 31, 2026. The Company accrued $4.4 million within accrued payroll and payroll-related costs in the unaudited condensed consolidated balance sheet as of March 28, 2025. The Company recognized $1.7 million in expense, which was recorded within selling, general and administrative (“SG&A”) expenses on the unaudited condensed consolidated statement of operations during the three months ended March 28, 2025. There was no comparable expense accrued related to the A&R TrIP during the three months ended March 29, 2024.