Why didn't NZX companies disclose 1080 threat?

Profits at newly listed Synlait Milk are expected to be $7.5m lower than prospectus forecast.

Questions are being raised about why publicly listed dairy companies did not keep the market informed about the 1080 infant formula threat.

Trading was halted in Fonterra Shareholders' Fund units, as well as shares in Synlait Milk and A2 Milk, yesterday afternoon ahead of the police announcement that Fonterra and Federated Farmers had received threatening letters last November.

Despite the threat being known about late last year, the three dairy companies did not update the market until 3.51pm yesterday, when they provided a Ministry for Primary Industries (MPI) press release about the contamination threat to the stock exchange.

The MPI release was flagged as price sensitive, meaning it had the potential to affect the stock price.

NZX listing rules require material information to be immediately released to the market.

One fund manager questioned whether Fonterra would be censured by the NZX for failing to meet its continuous disclosure requirements.

"New Zealand milk producers seem to have a privileged place in New Zealand society that is not warranted," he said.

A large number of people within the dairy industry knew about the threat prior to yesterday's announcement, as a major testing programme for 1080 contamination in formula products was conducted.

Quentin Lowcay, general counsel and company secretary at Synlait Milk, said the company was first informed of the threat early last month.

However, he said there were exemptions to continuous disclosure rules.

"If there is particularly sensitive, confidential information that a reasonable person would not expect to be disclosed and it is in fact kept confidential, and that information relates to a matter which is not yet definite or is the subject of legal protection, then it does not need to be disclosed to the market," Lowcay said.

Additionally, he said Synlait had to sign a confidentiality agreement with MPI before it received the information about the threat.

"The [Financial Markets Authority] was also briefed as to the situation," Lowcay said.

An NZX spokeswoman said the exchange operator and the Financial Markets Authority had been "actively engaged" on the disclosure implications for the listed companies affected by the 1080 threat.

"NZX and the FMA consider that although the alleged threat was treated at all times as genuine by MPI and the NZ Police, the nature of the information was maintained in confidence and not sufficiently definite to require earlier disclosure by potentially affected issuers under the NZX Rules," the spokeswoman said.

"Further, although information regarding the threat was known to specific individuals involved in investigating it, there was no evidence of a market in the securities of the relevant issuers that was materially influenced by false, or misleading information."

She said NZX and FMA considered that the release of "imprecise or insufficiently definite information" may have had an unintended adverse impact on trading in the three companies' shares.

"Both NZX and the FMA are confident that the approach taken to the halts and release of the related announcements yesterday was appropriate, particularly given the unusual circumstances," the spokeswoman said. "As part of NZX's routine surveillance processes relating to price sensitive announcements, trading ahead of yesterday's announcements will be assessed in detail for any suspected market manipulation or insider trading."

A2 managing director Geoff Babidge said that as the company is not a manufacturer - its products are made by Synlait - it was unaware of the threat until yesterday afternoon.

"When [the firm] became aware, it responded promptly by providing its own announcement to the NZX," Babidge said.

Synlait shares closed down 5c at $2.90 yesterday and were unchanged early this afternoon, while A2 shares closed up 1c at 54c and recently traded at 53c.

Units in the Fonterra Shareholders' Fund closed down 5c at $5.80 yesterday and were unchanged just after 1.30pm today.