a2 Milk has about a 20 percent stake in Synlait. Photo: Getty Images
- Former CEO John Penno has questioned who can vote at a special meeting.
- He says two major shareholders providing a rescue package should be barred.
- Bright Dairy and a2 Milk have bankrolled a $218m cash injection.
- The Synlait chair says if a deal is not approved, the company will go into insolvency.
The former head of dairy company Synlait Milk is threatening to upset a vital meeting to save the financially strapped business.
The company said it had received a complaint from former chief executive and chair John Penno, that Synlait's two major shareholders Bright Dairy and a2 Milk should not be allowed to vote on the $218 million capital raising.
The two big companies are putting up all the money needed, which would result in Bright Dairy's stake rising to 65 percent and a2 Milk preserving its near 20 percent stake, resulting in the stakes of minority shareholders being diluted.
A special meeting to approve the deal is due next month, with the big two shareholders not able to vote to give themselves new shares, but allowed to vote for the other to receive shares.
Penno's complaint is that the votes breach stock exchange and takeover rules, and that only minority shareholders should be able to vote. Penno holds 2.3 percent.
"Allowing both Bright and A2M to vote for each other's placements which are clearly interrelated goes against best practice. Of course, they both would support each other's sweetheart deal," Penno said.
The Synlait board had rushed to get deal over the line "at any cost" rather than doing what was in the best interests of all shareholders and the company, he said.
John Penno. Photo: Supplied
Deal is good and critical
Synlait rejected the complaint and said it had been in touch with regulators before calling the meeting, which it said was critical to its future.
"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.
"Synlait notes that such support from the banks will be hard to secure in such circumstances."
Penno said the board's proposed scheme would leave minor shareholders stranded with 15 percent of Synlait from the current 41 percent level, and in due course investor interest would diminish.
He declined to say whether his objections would be answered if Bright Dairy gave an undertaking to reduce its holdings below 50 percent in due course after the capital raising.
Penno said the board's plan was not the only option.
"It is my strong view that minority shareholders would be better off if Synlait was put into the hands of an administrator to sell the assets to the highest value owners."
He said values of the assets based on investment reports were close to $1.6 billion while liabilities were $900m, and he did not accept a report commissioned by the board casting doubt on how much assets could be sold for.
Penno was a founder and chief executive of Synlait for 12 years and joined the board in 2018. He abruptly quit in May and said it was a "fair question" what responsibility he had for the company's current predicament.
"It's fair to say I haven't always seen eye to eye with my other directors ... you leave a board when you determine that your views are not having any influence or disagree with what's going on."