What are shareholder intention statements and why they matter?

A shareholder intention statement is a public statement made by or on behalf of a key shareholder of the target that discloses the shareholder's intention to support or oppose a publicly announced change of control transaction. The statement is typically made at the same time the transaction is publicly announced or at some point before it is scheduled to close.

Shareholder intention statements are an established feature of public M&A transactions. They play an important role in both friendly and hostile change of control transactions by providing a public indication of the level of shareholder support for an announced transaction. Shareholder intention statements are significant because of their capacity to influence the decisions of other target shareholders in response to a change of control transaction, particularly where the shareholder making the intention statement is a sophisticated long-term holder that the market perceives has a well-informed view of the value of the target's shares.

Shareholder intention statements typically take the form of an 'acceptance' or 'rejection' statement.

• In an 'acceptance' statement, a shareholder will generally state that they intend to vote in favour of the resolution to approve the scheme or, if the transaction is structured as a takeover bid, that they intend to accept the offer. To preserve flexibility to respond to any better offer that may subsequently emerge, such statements will commonly be qualified as applying 'in the absence of a superior proposal'. Further, in schemes of arrangement and in some takeover bids where an independent expert's report is required to be obtained by the target (i.e. where the bidder's voting power in the target is 30% or more or the bidder and target have common directors), an acceptance statement is also often qualified as being subject to an independent expert delivering a 'positive' conclusion on the merits of the proposed transaction.

An acceptance statement from one or more key target shareholders can influence the success of a scheme or takeover bid by providing important public support and momentum for the announced transaction. An acceptance statement may also have a deterrent effect on potential rival bidders, although any deterrent effect is largely diminished if the statement is appropriately qualified as applying 'in the absence of a superior proposal'. However, as highlighted by the recent decision of the Takeovers Panel in Dropsuite Limited and the Mayne Pharma example (both discussed below), the perceived 'momentum' benefit (and any deterrent effect) of a voting intention statement is somewhat illusory. This is because a voting intention statement that is drafted in what has become a market standard way will allow a shareholder to dispose of all or some of their underlying securities at any time before the transaction is completed.

• In a 'rejection' statement, a shareholder will generally publicly state that they intend to vote against the scheme or, if the transaction is structured as a takeover bid, that they intend to reject the offer. Such statements often stifle momentum for a scheme or takeover bid, particularly where the shareholder making the statement is a substantial holder controlling a sufficient number of shares to determine or materially influence the outcome of the scheme vote or to defeat the takeover bid (e.g. if they hold a sufficient number of shares to prevent a minimum acceptance condition being satisfied). More generally, a rejection statement from an influential shareholder can send a powerful 'undervalue' signal to other shareholders that they too should vote against the scheme or reject the takeover bid – see for example the public 'intend to vote against…' statements made by Australian Super in the unsuccessful acquisition of Origin Energy Limited by Brookfield and EIG in 2023. Rejection statements are also often used as a way for a key shareholder to publicly communicate that the prospective acquirer needs to sweeten its offer to gain the support of the shareholder.

How are shareholder intention statements regulated?

The principal policy underpinning shareholder intention statements is that they increase transparency and market certainty by informing shareholders about the level of shareholder support for an announced transaction. However, any failure by the shareholder to "follow through" and act consistently with their stated intention may have the opposite effect and undermine the efficiency, integrity and certainty of the market in relation to the control transaction.

Given the significant impact that shareholder intention statements can have on how other market participants perceive and respond to an announced change of control transaction, these statements are closely monitored by ASIC. For example, ASIC will scrutinise 'acceptance' statements to ensure that they are appropriately qualified as set out above. These qualifications provide evidence that the shareholder making the statement is acting in a commercially rational and independent manner and is not an associate of the acquirer. ASIC will also monitor to ensure that the shareholder follows through and acts consistently with their statement and, if they do not, ASIC may commence regulatory action for breaching the misleading and deceptive conduct provisions in section 1041H of the Corporations Act 2001 (Cth) (Corporations Act).

Separately, the Takeovers Panel may make a declaration of unacceptable circumstances in relation to a shareholder intention statement on an application by a person with appropriate standing (including bidders, targets, other shareholders, other interested parties and ASIC). Where unacceptable circumstances are found, the Panel has the power to make remedial orders that uphold the core takeovers principles, including that the acquisition of control of a target takes place in an efficient, competitive and informed market.

The Panel recently exercised these powers in the matter of Dropsuite Limited. In the remainder of this article, we explore the important practical implications this decision has for making and procuring shareholder intention statements. This article builds on our previously published guidelines for bidders, targets and key shareholder on how they should each navigate the regulatory waters on shareholder intention statements.

See our earlier articles titled: Shareholder intention statements in takeovers - navigating the uncertainties (May 2016) and Development in shareholder intention statements with extension to restrict disposal of shares (October 2017).

Dropsuite Limited [2025] ATP 10 – declaration of unacceptable circumstances

Background

On 28 January 2025, Dropsuite announced to ASX that it had entered into a scheme implementation deed with US-based IT company NinjaOne under which NinjaOne agreed to acquire 100% of Dropsuite’s ordinary shares for $5.90 cash per share via a scheme of arrangement.
In its ASX announcement, Dropsuite made the following intention statement regarding its largest shareholder, Topline Capital Management, LLC (Initial Intention Statement):

“Dropsuite’s largest shareholder, Topline Capital Management, LLC, which as at the date of this announcement, holds or controls approximately 21.6 million Dropsuite shares or 31.0% of the Company’s issued capital on an undiluted basis, has confirmed to Dropsuite that it intends to vote, or cause to be voted, all Dropsuite shares held or controlled by it in favour of the Scheme in the absence of a Superior Proposal and subject to an Independent Expert concluding (and continuing to conclude) that the Scheme is in the best interest of Dropsuite shareholders.”

Between 28 January 2025 and 6 February 2025 (inclusive; i.e. within the first week following the announcement), Topline sold a material portion of its Dropsuite shares on-market, decreasing its interest from 31% to 19.7% (the First On-Market Sales). Topline should have filed a notice of change of substantial holder on various dates during this period but only disclosed its change in voting power in one notice on 18 February 2025. In that notice, Topline stated that (Second Intention Statement):

“Topline Capital continues to firmly support Dropsuite being acquired by NinjaOne. The share sales were made because of an [unforeseen] need for liquidity and because the position became a large percent of the portfolio. Topline Capital intends to hold its remaining shares through the close of the transaction and vote in favor of the transaction”.

Despite this clear indication that it would not dispose of any further Dropsuite shares, between 27 February 2025 and 17 March 2025 (inclusive), Topline proceeded to sell further Dropsuite shares on-market, further decreasing its shareholding from 19.7% to 10.5% (the Second On-Market Sales). Once again, Topline should have filed a notice of change of substantial holder on various dates during this period but only disclosed its reduced voting power in one notice on 18 March 2025.

Application

Sydney-based merger arbitrage firm Harvest Lane Asset Management Pty Ltd, who had acquired approximately 2.85% of the voting power in Dropsuite shortly following the announcement of the scheme, applied to the Takeovers Panel asserting that unacceptable circumstances arose from the following actions by Topline:

• the Initial Intention Statement did not indicate that Topline had reserved the right to sell Dropsuite shares before voting in favour of the proposed scheme. Therefore, a reasonable investor would have concluded that Topline intended to maintain its 31% interest right up to the date of the scheme meeting and vote that full 31% interest in favour of the proposed scheme;
• the First On-Market Sales (which occurred within the first week after the scheme was first announced) indicate that the Initial Intention Statement may have been given on a 'knowingly misleading basis'; and
• the failure to disclose the First On-Market Sales within the time required under section 671B of the Corporations Act created a false market in Dropsuite shares to Topline's benefit.

The Second Intention Statement and Second On-Market Sales were made after Harvest Lane filed its Takeovers Panel application but were considered by the Panel given their logical connection to the application.

Panel findings

The Panel upheld Harvest Lane's complaint and made a declaration of unacceptable circumstances finding that:

• Topline contravened the substantial holder provisions in failing to disclose the change in its voting power resulting from the first sell down within the time required under the Corporations Act;
• the Initial Intention Statement was ambiguous as to whether Topline had implied that it would not dispose of any Dropsuite shares prior to the shareholder meeting to vote on the proposed scheme;
• the Initial Intention Statement would have been self-evidently clarified had Topline lodged a substantial holding notice disclosing its reduced interest within the time required under the Corporations Act;
• the Second On-Market Sales were contrary to the intention stated in the Second Intention Statement; and
• as a result of the above, among other things, the market for Dropsuite was uninformed about material developments in relation to the level of support for the proposed scheme during a period in which trading in Dropsuite shares took place.

The Panel's reasons provide some interesting context to these conclusions.

First, the Panel reconfirmed its jurisdiction to consider ASIC's truth in takeovers policy in relation to both schemes and takeover bids, endorsing the Panel's earlier decisions in BreakFree Limited 03 [2003] ATP 38 & BreakFree Limited 04 [2003] ATP 39 and Ludowici Limited [2012] ATP 3. The earlier BreakFree proceedings had recognised that requiring persons to act in accordance with statements that they have made to the market concerning their intentions is important to promote the principle that the acquisition of control over voting shares takes place in an efficient, competitive and informed market. The Ludowici proceeding acknowledged that ASIC's truth in takeovers policy should apply in a scheme context, albeit its application may be different to its application in a takeover context.

In relation to the First Intention Statement and First On-Market Sales:

• ASIC submitted that Topline should have been clearer that its voting power might change by the time of the scheme meeting and that an express reservation of its right to sell Dropsuite shares before the scheme meeting would have implied that possibility.
• Topline submitted that the form of the First Intention Statement is very common in the Australian market and has never been understood to act as a standstill restricting the disposal or acquisition of shares in the target during the period from making the statement to the scheme meeting.
• Dropsuite agreed, submitting that the First Intention Statement did not need to expressly reserve the right for Topline to sell shares. Further, Dropsuite noted that if the Panel were to find that such reservation was required it would be reasonable to expect that voting intention statements would start to be accompanied by long lists of qualifications to cover potential future actions including selling shares, buying shares, stock lending, granting of security interests, transferring shares to related bodies corporate etc.
• The Panel acknowledged that it is not common market practice for shareholder intention statements to expressly reserve the right to sell shares and expressed a view that such reservations weaken the strength of the commitments. Despite this, the Panel considered that the First Intention Statement could have been clearer about the possibility that Topline's voting power might change before the scheme meeting, although did not provide any examples.

We agree with the submissions of Topline and Dropsuite in this regard. In particular, we agree that shareholder intention statements are regularly worded in the manner of the Initial Intention Statement and that such statements are not generally understood to impose any restriction on the ability of the shareholder to subsequently dispose of all or some of their shares.

In relation to the Second Intention Statement and Second On-Market Sales:

• The Panel considered the Second On-Market Sales were "clearly contrary to the intention stated in the Second Intention Statement" which unlike the First Intention Statement clearly stated that Topline "intends to hold its remaining shares through the close of the transaction and vote in favour of the transaction."
• The Panel sought submissions from the parties as to whether the circumstances had any impact on an efficient, competitive and informed market in Dropsuite shares or any other relevant adverse effect, and whether the rights or interests of any person or group of persons have been or are being affected or will be or are likely to be affected by the circumstances.
• Dropsuite submitted by reference to trading data that the circumstances surrounding Topline had a limited impact on the price or trading volume of Dropsuite's shares. This submission was supported by Topline who submitted that its Second Intention Statement was "unlikely to have been actually relied upon by persons considering whether or not to trade in Dropsuite shares" noting that the statement was contained in fine print as a footnote at the very back of the substantial holder notice.
• Harvest Lane submitted that anyone transacting in Dropsuite shares since the First Intention Statement has been affected and that if Dropsuite fails to secure shareholder support for the proposed scheme, particularly as a direct result of Topline's disposal transactions, the share price is likely to fall to levels prior to the announcement of the proposed scheme. Similarly, NinjaOne submitted that its rights or interests may have been affected if the shares sold by Topline were acquired by a rival bidder or otherwise voted against the proposed scheme.
• ASIC submitted that the overall circumstances undermined the principles of an efficient, competitive and informed market because the market was not properly informed about Topline's intentions and disposals, and shareholders may have acquired or chosen not to sell shares on the basis the scheme appeared to have the support of a 31% shareholder, making it more likely although not inevitable that the scheme would be approved.
• The Panel endorsed the submissions of NinjaOne and ASIC above finding that the absence of material movement in Dropsuite's share price – or a clearly quantifiable benefit and detriment – did not necessarily mean the circumstances had no impact on an efficient, competitive and informed market noting that the on-market sales impacted the certainty of the proposed scheme being approved at the scheme meeting.

Orders

Although the sitting Panel did not decide whether Topline had departed from its Initial Intention Statement, the Panel concluded that Topline had clearly departed from its Second Intention Statement in reducing its voting power from 19.7% to 10.5% via the Second On-Market Sales. Notably, the Panel did not hold Topline to the substance of the Second Intention Statement by requiring that Topline reinstate its voting power back up to 19.7% and vote that shareholding in favour of the scheme. Instead, the Panel ordered that Topline (and others) be prohibited from further disposing of its shares, or decreasing its voting power in, Dropsuite and requiring Topline to vote its remaining Dropsuite shares (10.5%) in favour of the proposed scheme, subject to the customary qualifications given in the Initial Intention Statement.

Harvest Lane submitted that if the Panel did not order a reinstatement of Topline's voting power from 10.5% to 19.7%, this would set a precedent that there is no material penalty to a breach of ASIC's 'truth in takeovers' policy or disclosure requirements under section 671B of the Corporations Act as it relates to schemes of arrangement.

However, the Panel disagreed with Harvest Lane and declined to order reinstatement including because:

• requiring Topline to repurchase Dropsuite shares on-market could have unintended consequences, including that the presence of a known buyer may artificially inflate the trading price of Dropsuite shares;
• market participants who acquired Dropsuite shares on the basis that the proposed scheme had the support of a 31% shareholder remain free to sell their shares on-market if they are concerned by the increased transaction risk resulting from Topline's decrease in voting power to 10.5%;
• a reinstatement order would be materially prejudicial to Topline as it would not be able to comply with the order without unfairly and materially prejudicing its third-party investors due to the liquidity position of its fund;
• the Panel's role is remedial, not punitive; and
• the orders grant the parties and ASIC liberty to apply for further orders, including in response to developments relating to the proposed scheme.

Implications of Dropsuite decision for shareholder intention statements

The wording of the Initial Intention Statement is consistent with how shareholder intention statements are commonly worded for a scheme of arrangement. Indeed, that wording is consistent with shareholder intention statements made by Harvest Lane itself in previous schemes of arrangement including Diverger Limited and Millenium Services Group Limited (each announced in 2023 and implemented in 2024). Before the Dropsuite case, it had been generally understood by the market that an intention statement drafted in this way (including by Harvest Lane in previous transactions) does not impose or imply any restriction on the ability of the shareholder to sell some or all of their shares before the scheme meeting, as they see fit.

Even though the wording of the Initial Intention Statement is consistent with how shareholder intention statements are commonly worded, the Panel's conclusion that the Initial Intention Statement was 'ambiguous' as to whether Topline had implied that it would not dispose of any Dropsuite shares prior to the scheme meeting now invites a question as to whether voting intention statements should continue to be drafted in this usual way.

As a result, shareholders making voting intention statements may now be more inclined to make it clear that there is no restriction on their ability to dispose of the shares the subject of their intention statement. This could be done by expressly reserving to themselves a disposal right or by stating, more subtly, that the intention statement applies to the shares held or controlled by the shareholder as at the date of the scheme meeting (which in turn indicates that the number of shares held by the shareholder at the time of the scheme meeting may differ from the number held or controlled as at the date of the intention statement).

This latter, more subtle, approach was adopted by Viburnum Funds and Mr Bruce Mathieson in the Mayne Pharma scheme.

In February this year, Mayne Pharma announced that it had entered into a scheme implementation deed with Cosette Pharmaceuticals Inc. under which Cosette agreed to acquire all of the shares in Mayne Pharma for $7.40 per share. The ASX announcement of the scheme released by Mayne Pharma stated that:

"Mayne Pharma's two largest shareholders, Viburnum Funds and Mr Bruce Mathieson, who currently collectively own 14.1% of the issued ordinary shares of the Company have both notified Mayne Pharma that they intend to vote all shares held by them on the record date for the Scheme Meeting [emphasis added] in favour of the proposed transaction in the absence of a superior proposal." However, less than one week later, Viburnum Funds announced that it had ceased to be a substantial holder of Mayne Pharma. From the information disclosed in that filing, it could readily be ascertained that Viburnum had in fact sold down its entire 7.5% Mayne Pharma holding in the first week after the scheme was announced, at a price of approximately $7.22 per share. This was confirmed when the Scheme Booklet was released by Mayne Pharma on 15 May 2025.

This same - more subtle - approach of anchoring the intention statement to the number of shares held down the track as at the scheme meeting date was also recently used by Perennial Value Management, the major shareholder of Envirosuite Limited, in relation to the proposed acquisition of Envirosuite by Ideagen Limited announced on 12 May 2025. Within one week of Envirosuite's announcement (which included a voting acceptance statement attributed to Perennial), Perennial filed an updated substantial holder notice disclosing that it had already sold down more than 1% of its Envirosuite shares.

Shareholders anticipating that they may sell shares before the scheme vote may now wish to expressly reserve the right to do so. While the Panel appears to be of the view that such reservations "weaken the strength" of an intention statement, the perceived "strength" of voting intention statements has always perhaps been overstated because voting intention statements have never been understood to import a disposal restriction (absent any specific indication to the contrary, as per the Pepper example below).

With the illusion of strength offered by a voting intention statement now exposed by both the Dropsuite and Mayne Pharma examples, bidders and targets may seek to bolster the strength of an agreed transaction by securing a shareholder intention statement that includes an express disposal restriction. For example, we saw such a statement in the Pepper scheme back in 2017. On 25 September 2017, Pepper made an announcement to ASX that included the following statement:

“Further, Mr Seumas Dawes, Chairman of Pepper, Mr Michael Culhane, Group Chief Executive Officer and Mr Cameron Small, Group Chief Financial Officer, and each of their respective affiliates, who together hold or control 35.4% of the total shares have confirmed their intention to vote in favour of the Scheme, to elect the Equity Alternative, and to not dispose of, or purport to agree to dispose of, any of the Pepper shares they control until and including the Implementation Date otherwise than pursuant to the Scheme, in the absence of the Pepper Board recommending a Superior Proposal and subject to an independent expert concluding (and continuing to conclude) that the Scheme is in the best interests of Pepper shareholders.” (emphasis added)

The Pepper shareholder intention statement is one of the very few clear examples of a shareholder intention statement extending beyond voting intentions and including express restrictions on disposal.

However, we expect that acceptance statements that embody an express restriction on disposal will remain limited for two key reasons.
First, shareholders will be naturally reluctant to issue intention statements that embody any restriction on their ability to dispose of their shares, particularly because even a relatively straightforward change of control transaction usually has at least a three-month period to completion. A lot can change in three months, both from the target's operational and financial perspective and from the specific financial circumstances of the shareholder making the intention statement. Therefore, it's entirely understandable that the shareholder wants to remain free to sell all or some of its shares in that time, as it sees fit. This desire for flexibility is only increased if the expected period to completion (and therefore the period of any disposal restriction) is likely to be much longer than three months. For example, if the control transaction is subject to numerous and/or complex regulatory approvals in multiple jurisdictions or other conditions that are anticipated to take some time to satisfy or that are otherwise outside the control of the bidder/target. Indeed, the mandate of institutional fund managers would likely preclude them from agreeing to any arrangements that restrict their ability to dispose of shares between the making of a shareholder intention statement and completion of the transaction.

Second, acceptance statements that include a disposal restriction significantly heighten the risk that the bidder/ target will be deemed to obtain a relevant interest in the shares subject to the acceptance statement, either because:

• an association between the bidder/target and the proponent shareholder may be deemed to arise due to the formation of a relevant agreement between them in relation to the acceptance statement; or
• in the absence of a deemed association, the acceptance statement (even if not expressed to be for the benefit of the target/bidder) could potentially provide the bidder/target with a sufficient degree of control over the disposal of the relevant shares (e.g. though the ability to make an application to the Panel to enforce the intention statement) so as to give the bidder/target a relevant interest in the shares.

In turn, this may result in the bidder or target breaching the 20% takeovers prohibition under section 606(1) of the Corporations Act. This will be relevant where the shareholder making the acceptance statement holds more than 20% of the target's shares or, where the shareholder holds less than this amount, but the bidder has pre-existing voting power in the target which, when aggregated with the voting power of the shareholder, would cause either party to exceed the 20% threshold. As a result of this risk, we expect that restrictions on disposal in shareholder intention statements will be limited to circumstances where the collective voting power of the bidder and the shareholder is less than 20%.

This recent decision is a timely reminder that market participants should seek legal advice before making or soliciting a shareholder intention statement, or taking any action that may be perceived as being inconsistent with an intention statement, due to the risk of regulatory intervention by ASIC or the Panel.

Please feel free to reach out at any time to discuss.

* Member of the Takeovers Panel but not a member of the sitting Panel in the Dropsuite matter. The views expressed by the co-author in this article are expressed in his professional and personal capacity only, not as a member of the Takeovers Panel.