What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
The result also means a lifeline for the troubled Canterbury processor facing unsustainable debt levels of $560 million, including under-utilised North Island investment worth $450m.
To reduce Synlait’s debt, shareholders were asked to vote on the issuance of approximately $217.8 million of new equity capital to the company’s two largest shareholders, Bright Dairy Holdings and The a2 Milk Company, as well as Synlait’s settlement with The a2 Milk Company. Shareholders were also asked to vote on certain administrative amendments to Synlait’s constitution. All resolutions passed with around 95% support from shareholders excluding Bright Dairy, which could not vote. Synlait’s independent directors had warned that should any of the resolutions fail, the company would be forced to cease trading and initiate a formal insolvency process.
The vote has lifted Bright Dairy’s shareholding from 39% to 65% while a2MC’s stake remains at 19%.
Synlait chair George Adams says this is a watershed vote for Synlait.
“Shareholders have given us the opportunity to create a positive future for the company, its investors, farmer suppliers, customers, suppliers and for our 1,400 employees. Thank you for support.”
On behalf of Bright Dairy’s appointed directors Julia Zhu says that their decision to participate in this process has been about protecting the long-term value of Synlait.
“And it further reflects the scale of our commitment to see it rebuild stronger, while restoring farmer supplier confidence over coming years.”
Synlait will use the money raised from new shares to reduce debt and pay $180m due to retail bondholders.
Speaking at the special shareholder meeting earlier Adams expressed faith in Synlait’s viability.
He noted that Synlait retains all of the components that underpinned its earlier financial success.
Its world-class facilities have exceptional capability in quality and innovation, he says.
“Synlait can deliver products that other New Zealand companies cannot – it is the largest infant milk formula manufacturer in the southern hemisphere. That is why it has committed global customers. And in addition, at Pokeno we now have a facility that can produce advanced nutritional products incorporating plant-based ingredients.
“That makes Synlait a company worth saving – as long as we can meet the forthcoming payments and get our debt to a sustainable level.”
