Synlait co-founder and shareholder John Penno believes a better deal is possible for the struggling milk company, not only for minority shareholders but for farmers, staff, customers and New Zealand Inc.
“It is extremely important that we get this right for all parties associated with this essential agribusiness,” Penno said.
“This is an important company for industry and for NZ.
“I don’t believe that the board have been able to explore all options and I’m asking them to be more explicit about the processes they have gone through.
“Forcing this deal through looks like a move to prevent better options coming forward and I have no doubt they will emerge if the current roadblocks to a better capital structure are removed, and management is given the freedom to make sensible choices.”
Penno, a 2.4% shareholder, has made formal complaints to both the NZX and Takeovers Panel regarding a capital raise that he said completely overlooks minority shareholder rights.
At a special shareholders’ meeting in September the board will ask shareholders to approve resolutions relating to the proposed recapitalisation of the issuance of $185m of shares to Bright Dairy Holding Limited and of $32.8m shares to the a2 Milk Company and the settlement with a2MC and A2 Infant Nutrition Limited.
“My advisers have concluded that the voting procedures set out in the Notice of Meeting are not legally compliant in critical areas,” Penno said.
“The Synlait board has erred in getting this deal across the line at any cost rather than doing what is in the best interests of all shareholders and indeed the company.
“It should be noted that minority shareholders cumulatively own 41% of Synlait’s shares, making them the largest interest group in the company, yet they have been completely overlooked in the capital raising process that will see their cumulative holdings diluted to 15%.”
Penno said minority shareholders would be better off if Synlait was put into the hands of an administrator to sell the assets to the highest value owners.
Based on publicly available information from the company and brokers reports the net value of Synlait’s assets after debt is around $600 million.
The current deal essentially takes the company private, with independent shareholders captive, valuing Synlait at not much more than $100m.
“Synlait’s need to address fundamental issues facing it dates back to 2020. I applaud the board settling its differences with a2Milk. However, questions should be asked about how the relationship could have got in this state to begin with.
“Bright has controlled the Synlait board since 2010, so how can moving from 39% to 65% help when it has not worked to date?
“The current plan raises enough capital to kick the can down the road while raising support from farmers, staff and key international customer accounts.
“I urge independent shareholders not to cast their votes until these matters are resolved, and the board makes clear how they are going to solve the issues the company has so obviously faced under the current ownership structure.”
Synlait chair George Adams said Penno’s position was unhelpful and based on unsubstantiated asset valuations.
“He is putting forward a narrative that is effectively Russian roulette for all stakeholders.
“Our proposal recapitalises the company, pays our bondholders, provides a refinance option for our banks and ensures a viable future for Synlait group’s more than 1400 employees and the nearly 260 farmer suppliers whose businesses rely on us.
“It enables shareholders to be part of a company that we are confident will return to profitability and positive cashflows.”
Adams said the board’s responsiblities are to act in the best interests of the company and, in this situation, all stakeholders, including its minority shareholders.
“Over the past year, the board has worked through a comprehensive and thorough process, which included testing the market for major asset sales. The independent directors remain confident the current proposal is the best option for Synlait and all its shareholders.
“The report by Northington Partners has independently come to the same conclusion. It has also carefully appraised the insolvency option concluding that it would deliver ‘highly uncertain outcomes’ for shareholders.
“We are confident shareholders will see the merits of our proposal and we recommend they carefully read the notice of meeting and the independent Northington report before voting.”
This story has been updated with further comments from Synlait chair George Adams.
