Clifford Chance

Here we discuss the Dropsuite case, highlighting how the Truth in Takeovers policy reinforces the need for clear, reliable voting intention statements to uphold market integrity in control transactions.

One of the key principles guiding the regulation of control transactions in Australia’s public markets is the Truth in Takeovers policy. This principle is outlined in ASIC’s Regulatory Guide 25 – Takeovers: false and misleading statements, and has been further shaped by guidance from the Takeovers Panel (the Panel).

What is Truth in Takeovers?

The Truth in Takeovers policy holds that participants in control transactions—whether bidders, targets, or major shareholders—must stand by their public statements (or statements publicly attributed to them that they do not correct). This supports a core objective of Chapter 6 of the Corporations Act: ensuring that control of voting shares in companies occurs in an efficient, competitive, and informed market.

Recently, the Panel considered how this policy applies to voting intention statements made by a major shareholder in the context of a scheme of arrangement.

The Dropsuite case

On 28 January 2025, Dropsuite Limited (Dropsuite) announced it had entered into a scheme implementation agreement with NinjaOne LLC and NinjaOne Australia Pty Ltd (NinjaOne). Under the scheme, NinjaOne would acquire all Dropsuite shares. In its announcement, Dropsuite included a statement from its largest shareholder, Topline Management LLC (Topline) (holding ~31% of shares), confirming its intention to vote in favour of the scheme—subject to no superior proposal emerging and the Independent Expert concluding (and continuing to conclude) that the scheme is in the best interest of Dropsuite shareholders.

Importantly, the statement made no mention of whether Topline intended to dispose of any of its shares in Dropsuite.

Between 28 January and 6 February 2025, Topline sold 11.3% of its stake, reducing its holding to 19.7%. On 18 February, it disclosed this change and reiterated its support for the scheme, citing an unforeseen need for liquidity and portfolio concentration as reasons for the sale. It also stated its intention to hold the remaining shares and vote in favour of the transaction.

However, Topline later sold another ~9%, bringing its holding down to 10.5%.

Panel Proceedings

Harvest Lane, another shareholder in Dropsuite, initiated proceedings with the Panel, arguing that the market was misled about the level of support for the scheme during a critical trading period. Harvest Lane had acquired a 2.85% stake on the day the scheme was announced.

The Panel agreed and declared the circumstances unacceptable. It issued orders preventing Topline from further reducing its holding and requiring it to vote in favour of the scheme.

In its reasoning, the Panel emphasised:

• Market participants generally expect shareholders who make voting intention statements will not sell a significant portion of their shares before the vote. Topline’s statement could have been clearer about the possibility of changes in its holding.
• Topline’s claim that it acted without understanding the consequences was given limited weight, as the impact of its actions was significant.

While the Panel upheld the Truth in Takeovers principle, it acknowledged that the orders did not fully address the issue—Topline’s voting power had already dropped from ~31% to ~10%. However, the Panel was concerned that forcing Topline to repurchase shares could have distorted the market and was not feasible given Topline's liquidity constraints.

Final outcome

Despite these issues, the scheme received overwhelming shareholder approval, with 99.6% voting in favour.

Key takeaways for dealmakers

• Major shareholders should be cautious when making public statements, especially voting intentions, to avoid misleading the market.
• Legal advice is essential before making such statements, particularly for transactions with extended timelines.
• Future voting intention statements are likely to include conditions clarifying that shareholders may still sell their shares. For example, in the current Gold Road Resources scheme, supporting shareholders explicitly stated that their voting intention statement does not preclude them from selling shares before the scheme meeting.