Takeovers Panel says it will not take action over Synlait plan

Synlait said the special shareholders’ meeting to approve the deal, due on September 18, would be a critical step for the future of the company. Photo / Supplied

The Takeovers Panel said it would “take no further action” over Synlait Milk’s recapitalisation plan following a complaint about the deal from John Penno, who co-founded the company and who remains a significant shareholder.

The capital raise will be by way of the issue of $185 million worth of shares to Bright Dairy at 60c a share and $32.8m worth to a2 Milk at 43c a share.

If approved, Bright’s holding in the debt-laden Synlait will go from 39.01% to 65% while a2 Milk’s stake will remain at 19.8%.

The deal will mean minority shareholders will see their stakes heavily diluted.

Synlait said the special shareholders’ meeting to approve the deal, due on September 18, would be a critical step for the future of the company.

Penno is a 2.3% shareholder, having previously served as the chief executive, the non-independent chair, and as a director of the company until May this year.

His notice of complaint asserted that under the NZX Listing Rules and Takeovers Code, Bright and a2 Milk should not be able to vote on resolutions relating to the recapitalisation, leaving only shareholders other than Bright and a2 being able to vote on the two resolutions.

Synlait disagreed with the complaint and considered that the NZX Listing Rules and Takeovers Code had been complied with.

The panel met yesterday, regarding the potential association between a2 Milk and Bright Dairy, to consider whether to call a meeting under section 32 of the Takeovers Act 1993 in response to a complaint received from Penno.

“On the basis of the information before it, the Panel agreed there was no reasonable possibility that Bright Dairy and The a2 Milk were or would be ‘associates’ for the purposes of the Code in relation to the proposed allotment of shares in Synlait Milk Limited to Bright, which is to be voted on at Synlait’s upcoming special shareholders’ meeting,” the panel said.

In supplied comments, Synlait chair George Adams said the board is following a comprehensive process.

“Our focus remains on ensuring retail shareholders understand the merits of the proposal and how critical it is they vote in favour of it,” he said.

“Our proposal recapitalises the company, pays bondholders, provides a refinance option for our banks and ensures a viable future for more than 1400 employees and hundreds of farming businesses.”

Adams added the board was confident the plan would return Synlait to profitability and positive cashflows.

The panel considered that each of a2 Milk and Bright were acting in pursuit of their respective commercial interests, rather than as part of a coordinated strategy relating to control over voting rights.

“Accordingly, the Panel declined to call a section 32 meeting under the Act and, based on the information before it, will not take any further action in relation to this matter at this stage,” it said.

Synlait said last month that the special shareholders’ meeting would be critical.

“If the resolutions are not approved and the recapitalisation is not implemented, Synlait would likely need to cease trading and initiate a formal insolvency process unless it were to become clear that further support would be forthcoming from Synlait’s existing banks,” the company said.

Synlait said support from its banks would be hard to secure in such circumstances.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.