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The Takeovers Panel has fallen short of Harvest Lane Asset Management's request that Topline Capital be ordered to return to its former 31 per cent holding in cloud backup company Dropsuite (ASX: DSE), but has declared its $82 million share sell-off that followed an acquisition bid from US suitor NinjaOne to be unacceptable.
When announcing the $420 million takeover offer from NinjaOne in January, Melbourne-headquartered Dropsuite highlighted support for the deal from Californian investor Topline, its largest shareholder at the time with almost a third of the shares on issue.
But once the share price had surged following the announcement Top Lane cashed in on the majority of its investment, first winding its holding down to 19.7 per cent, and later down to 10.47 per cent.
Sydney-based Harvest Lane, a merger arbitrage investment firm headed by its managing director and chief investment officer Luke Cummings, took issue with this and filed a complaint to the Takeovers Panel.
Merger arbitrage firms like Harvest Lane invest in companies that have struck takeover deals, capitalising on the tendency for share prices to fall just short of offer prices to accommodate the risk of agreements falling through.
An early response from the Takeovers Panel was to put an interim stop order in place to stop further sell-downs, but on Friday this was formalised with Topline's actions declared unacceptable for multiple reasons.
Topline's last round of share sales was only declared to Dropsuite on 18 March, the same day the Takeover Panels received an application from Harvest Lane, even though it had been selling shares since late February.
It had been a similar story in the first round of share sales, with Topline lodging just one substantial holder notice on 18 February even though it should have made four since the first sell down in late January.
The Takeovers Panel noted that Topline should have lodged substantial holder notices on eight occasions, but filed just two.
It also determined that Dropsuite's announcement around Topline's support of the acquisition, known as the first intention statement, was "ambiguous as to whether Topline had implied it would not dispose of any Dropsuite shares" prior to a shareholder vote.
The panel also took aim at its second intention statement justifying sales prior to 18 February, whereby Topline said the sell down took place due to 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," the investor said in its 18 February substantial holder notice, not long before it proceeded to sell more stock.
"The first intention statement would have been clarified on 30 January 2025 if Topline had lodged a substantial holding notice by that date, as it was required to do," the Takeovers Panel declared.
"Topline’s disposals of Dropsuite shares between 27 February 2025 and 17 March 2025 (inclusive) were contrary to the intention stated in the second intention statement.
"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."
In response, the panel ordered that Topline not sell, transfer or otherwise dispose of any shares or interests in shares in Dropsuite, decrease its voting power, or vote in any way contrary to the first intention statement of support for the deal.
"The orders also provide parties and ASIC with the liberty to apply for further orders, to deal with (among other things) developments in relation to the proposed scheme," the panel adds.
Last week the Federal Court approved the scheme meeting which is due to take place on 9 May, with all directors reiterating their unanimous intentions to vote in favour of the agreement.
An independent expert has also determined the proposal to be "fair and reasonable" and in the best interests of shareholders, assessing the value per Dropsuite share on a controlling interest basis to be in the range of $3.92 to $5.88 - the upper range just below NinjaOne's offer price of $5.90.
Amidst the broader market sell-off today, Dropsuite shares are currently down 1.23 per cent at $5.63 - their lowest level since the spike that followed the takeover announcement.
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