European multinational gazumps Synlait IPO

Addition of new cornerstone shareholder leaves NZ investors high and dry.

A large European dairy cooperative has gazumped the Synlait Milk capital raising to emerge with a strategic stake in the Canterbury-based processor before its sharemarket listing on July 23, sources say.

The dairy multinational is understood to be friendly to Synlait Milk and will become an additional cornerstone shareholder, outside the group of existing investors, such as China's Bright Dairy, which will have a 39.1 per cent stake after the offer.

An announcement about identity of the new party - said to be a Synlait customer - is expected tomorrow.

While Synlait Milk is understood to be happy with the addition, the emergence of a major new participant in the initial public offer (IPO) process has left potential investors high and dry.

"This new trade buyer came in and gazumped the process and certainly ended up with a cornerstone component," said one fund manager. "It's kind of stuffed things for New Zealand investors to some degree."

Sources said the multinational's stake would require a so-called substantial security holder notice to the NZX, which means the stake is likely to be just over the 5 per cent disclosure threshold.

After a book-building process on Monday and Tuesday, the issue price was set at $2.20 - towards the bottom of the $2.05 to $2.65 indicative range. However, fund managers were left scratching their heads about why the stock was priced so low, given the offer was said to be four to five times oversubscribed.

"The multinational came in and bid very aggressively ," said one source close to the IPO. "Investors will get the price that would have been there without the endorsement of a strategic holder, so that's quite good."

Private client advisers reported getting just 20 per cent of the stock they had bid for.

At $2.20 a share, Synlait Milk will have a market capitalisation of about $322 million on completion of theIPO.

Synlait Milk chairman Graeme Milne said the response from New Zealand and international institutions and New Zealand retail brokers had been "extremely positive".

The IPO comprises $75 million in new capital to repay debt and fund Synlait Milk's growth initiatives and a secondary offer of $38.7 million being 17.6 million existing shares originating from participating shareholders of Synlait Ltd.

Bright Dairy's non-participation in the offer will mean it will lose its 51 per cent majority ownership. After the offer, Japan's Mitsui -- which has a 22.5 per cent stake in Synlait Ltd -- will have a stake of around 8 to 9 per cent in Synlait Milk.

One fund manager said the arrival of a new cornerstone shareholder was good outcome for Synlait Milk.

"They have established a broad set of investors and raised capital, but it has left people a little bit short compared with what they were hoping to get," he said. "The true test will be when it lists."

An IPO was one of the goals Bright Dairy set out for Synlait Milk when it acquired its 51 per cent stake for $82 million in November 2010.

Bright Dairy is part of the Shanghai-listed China's Bright Food conglomerate.

Synlait Milk's float comes at a time of intense consolidation of the dairy industry in China, where milk formula has become a hot topic in the wake of the melamine scandal of 2008.