Synlait co-founder John Penno lodges complaint over recapitalisation plan

Synlait says it intends to engage with regulators in order to have John Penno's complaint dismissed before the special shareholders’ meeting.

Synlait Milk has received notice that co-founder, former chairman and former chief executive John Penno has complained to the NZX’s regulatory arm - NZ RegCo - and the Takeovers Panel over its recapitalisation plan.

The plan, which will see the company’s two biggest shareholders Bright Dairy and a2 Milk inject cash into the the debt-laden dairy and infant formula maker, will go before a special meeting scheduled for September 18.

Under the plan, a2 Milk will end up retaining its current shareholding (19.8%), while Bright Dairy’s ownership will increase from 39% to 65.25%

The two companies will control around 85% of Synlait’s voting capital, with retail shareholders’ share declining from around 41% to 15%.

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.

The notice of complaint asserts 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 disagrees with the complaint and considers that the NZX Listing Rules and Takeovers Code have been complied with,” the company said.

Synlait intends to engage with the regulators in order to have the complaint dismissed before the special shareholders’ meeting.

Synlait’s notice of meeting was issued on August 20 following external advice and approval by the regulators.

It asks shareholders to approve the following resolutions relating to the proposed recapitalisation: (a) the issuance of $185 million of shares to Bright Dairy Holding Limited (Bright); and (b) the issuance of $32.8 million of shares to a2 Milk.

Synlait said the special shareholders’ meeting was a critical step for the future of the company.

“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.

Independent chair George Adams said the board has followed a rigorous process.

“The independent directors remain confident that this is the optimal offer structure for the company.”

“At this stage, the complaint has no effect on the resolutions to be voted on at the special shareholders’ meeting nor the timing of the special shareholders’ meeting, which will proceed as scheduled.”

The New Zealand Shareholders’ Association (NZSA) this week panned Synlait Milk’s recapitalisation plan, saying it represents a ‘dead rat’ for minority shareholders.

The association said the long-awaited capital raise represented an effective end-game for the future of Synlait as a listed investment opportunity for shareholders.

“There is no doubt that a capital raise is required, as part of a wider restructure of a balance sheet that is punch-drunk from the impacts of poor investment decisions, debt funding and less-than-stellar operating performance,” NZSA chief executive Oliver Mander said in a report.

“And therein lies the issue – the balance sheet is so stressed that the Synlait board has deemed that there is no room for retail shareholders in Synlait’s financial resurrection.”

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