SML - Synlait Milk Ltd

[blackcap]

So aren't they subject to the takeover code where they can't go beyond 20% without special measures (or 39% in the case of Bright, who presumably already has approval to be at 39%)

I think they will have to seek shareholder approval. I recall various other entities with large shareholders having to do the same thing. Definitely ATM as they are currently under 20%, not sure on Bright.

Or can they get a waiver?

[Poet]

I think they will have to seek shareholder approval. I recall various other entities with large shareholders having to do the same thing. Definitely ATM as they are currently under 20%, not sure on Bright.

Or can they get a waiver?

Thanks, that's good to hear. I don't think a waiver is a possibility. This is a matter of statute, not NZX listing rules.

I don't think those large shareholders, who have presided over this huge destruction of wealth, now get to benefit from the destruction by buying up the carcass cheaply.

[Balance]

So aren't they subject to the takeover code where they can't go beyond 20% without special measures (or 39% in the case of Bright, who presumably already has approval to be at 39%)

My understanding is that Bright needs shareholders approval.

From Minter Ellison :

All listed companies are subjected to the Takeover Code so they cannot increase their stake beyond 20% (or from anywhere between 20.1% to 49.9%) except under the following conditions:

a takeover offer (under the Takeovers Code);
a scheme of arrangement (under the Companies Act); or
an acquisition or allotment of shares approved by shareholders.

There are other exceptions to the 20% rule, including ‘creeping’ acquisitions of no more than 5% of the Code Company’s voting rights in a 12 month period in certain circumstances, and compulsory acquisition of the remaining shares in the Code Company, where the shareholder already has 90% or more of the voting rights in that Code Company.

[Poet]

My understanding is that Bright needs shareholders approval.

From Minter Ellison :

All listed companies are subjected to the Takeover Code so they cannot increase their stake beyond 20% (or from anywhere between 20.1% to 49.9%) except under the following conditions:

a takeover offer (under the Takeovers Code);
a scheme of arrangement (under the Companies Act); or
an acquisition or allotment of shares approved by shareholders.

There are other exceptions to the 20% rule, including ‘creeping’ acquisitions of no more than 5% of the Code Company’s voting rights in a 12 month period in certain circumstances, and compulsory acquisition of the remaining shares in the Code Company, where the shareholder already has 90% or more of the voting rights in that Code Company.

Thanks. that was my understanding too. So they can't just lob a 4 for 1 at 0.25 out there because that would result in them being diluted. They are going to have to, either put the company into receivership or come to some arrangement with each other, and the smaller shareholders.

[Ggcc]

My understanding is neither would need shareholder approval to increase their holdings in SML.
Both would need each other’s agreement for either of them to takeover SML, either through a straight takeover offer, or a scheme of arrangement, the threshold for the latter being 75%

It will be a scheme of arrangement between A2 and Bright Dairy to buy out remainder of shareholders at a premium and a capital top up by the two giants. They need to act quickly as I have heard some farmers are leaving Synlait, as they (farmers) need to get paid or they are out of business. No one likes uncertainty

[Balance]

Thanks. that was my understanding too. So they can't just lob a 4 for 1 at 0.25 out there because that would result in them being diluted. They are going to have to, either put the company into receivership or come to some arrangement with each other, and the smaller shareholders.

Thing is, what are minority shareholders going to do if the banks require a capital injection of $200m and Bright is the only entity prepared to underwrite the CR?

Minorities can hardly vote the proposal down and risk SML going into receivership, at which point Bright can assert that they did their best and in all clear conscience, can bid for the company's assets directly (on the cheap).

Minorities have the option to participate in any CR as long as its pro-rata.

[Balance]

It will be a scheme of arrangement between A2 and Bright Dairy to buy out remainder of shareholders at a premium and a capital top up by the two giants. They need to act quickly as I have heard some farmers are leaving Synlait, as they (farmers) need to get paid or they are out of business. No one likes uncertainty

The farmers are under contracts with a take or pay arrangement for their milk with SML, just like the farmers with Fonterra or Westland?

SML/Bright/ATM do need to move sooner than later.

[Bikeguy]

Thanks. that was my understanding too. So they can't just lob a 4 for 1 at 0.25 out there because that would result in them being diluted. They are going to have to, either put the company into receivership or come to some arrangement with each other, and the smaller shareholders.

This is good stuff, I have learned something new here, much appreciated!!

[Bikeguy]

Thing is, what are minority shareholders going to do if the banks require a capital injection of $200m and Bright is the only entity prepared to underwrite the CR?

Minorities can hardly vote the proposal down and risk SML going into receivership, at which point Bright can assert that they did their best and in all clear conscience, can bid for the company's assets directly (on the cheap).

Minorities have the option to participate in any CR as long as its pro-rata.

So what you are saying is Bright could get agreement to (potentially) increasing their position through a CR because if minority shareholders (including A2) don’t agree to it then in reality it’s game over?

[Balance]

So what you are saying is Bright could get agreement to (potentially) increasing their position through a CR because if minority shareholders (including A2) don’t agree to it then in reality it’s game over?

That’s the scenario. Minorities could of course participate in the CR in which case the status quo stays (ie. Bright stays at 39%].

Reality though is that between 5% to 10% of shareholders do not normally participate in any CR. More so when the stock has lost them so much money.

Hard to believe that SML was trading at over $10+ at one time!!!!

HGH is a case in point in recent times - I think 15% of minority retail shareholders did not participate so the underwriters ended up with 15m shares.