Former Synlait boss questions voting rights of major shareholder

a2 Milk holds about 20% of Synlait.
photo: Getty Images

• Former CEO John Penno questioned who has the right to vote at the special meeting.
• He said the two largest shareholders should be prohibited from offering bailouts.
• Bright Dairy and a2 Milk have invested US$218 million.
• Synlait’s chairman said the company would go bankrupt if the deal was not approved.

The former head of dairy company Synlait Milk has threatened to cancel a key meeting aimed at saving the financially troubled business.

The company said it had received a complaint from former chief executive and chairman John Penno that Bright Dairy and a2 Milk, two of Synlait’s largest shareholders, should not have been allowed to vote on the $218 million capital raising.

These two large companies Provide all necessary fundsThis will result in Bright Dairy’s shareholding ratio rising to 65%, while a2 Milk will still retain its nearly 20% stake, resulting in the dilution of minority shareholders’ equity.

A special meeting to approve the deal will be held next month, and the two largest shareholders cannot vote for new shares for themselves but can vote for each other to receive shares.

The complaint from Peno, which holds a 2.3 percent stake, is that the vote violates stock trading and takeover rules, which only minority shareholders are entitled to vote.

“It goes against best practices to allow Bright and A2M to vote for placements that are clearly related to each other. Of course, they will both support each other’s private deals,” Penno said.

He said Synlait’s board was rushing to get a deal done at any cost rather than taking an approach that was in the best interests of all shareholders and the company.

John Payne.
photo: supply

The deal is good and vital

Synlait rejected the complaint and said it had engaged with regulators before the meeting, which it said was crucial to its future development.

“If the resolution is not approved and the recapitalisation is not implemented, Synlait will most likely need to cease trading and commence formal insolvency proceedings unless there is evidence that Synlait’s existing banks will provide further support.

“Synlait noted that it was difficult to get support from banks in such circumstances.”

Penaud said the plan proposed by the board would result in minority shareholders’ holdings in Synlait falling to 15% from the current 41% and that investor interest would wan.

He declined to say whether his objection would be met if Bright Dairy promised to reduce its stake to below 50% in due course after the financing.

Penaud said the board’s plan is not the only option.

“I firmly believe that the interests of minority shareholders would be improved if Synlait were placed in the hands of an administrator who could sell the assets to the highest value owner.”

He said that according to investment reports, the assets were valued at nearly $1.6 billion, while liabilities were $900 million, and he did not accept a report commissioned by the board that cast doubt on the sale price of the assets.

Penaud, who served as Synlait’s founder and chief executive for 12 years and joined the board in 2018, resigned abruptly in May, saying it was a “legitimate question” what responsibility he bore for the company’s current woes.

“To be fair, I didn’t always see eye to eye with the other directors… When you decide your opinion doesn’t carry any weight, or you don’t agree with what’s going on, you leave the board.”