SML - Synlait

[Minimoke]

Majority ownership is generally a condition for a company being considered a subsidiary. (Which makes sense, considering a company can only be a subsidiary of at most one holding company.)

Can you cite anything official not from Bright, that claims Synlait is a subsidiary of Bright?

This page on Synlait's website is curious - it mentions Bright taking a 51% stake, but not that it no longer holds a majority stake. Good information is hard to come by.

Bright used to hold 51% of Synlait.

But in 2013 synalit listed via IPO on stock exchange as part of a capital raise exercise.

Bright Choose not to keep its 51% holding.

But part of the deal was that Bright would hold 39.01% of the company. Obviously not a majority.

Also part of the deal was that Bright would be entitled to have up to 4 Directors on a Board that could have up to 8 Directors.

This was subject to Brights holding not dipping below 37%. If it did then they would loose a proportional board seat. This is one reason why Bright will have participated in recent capital raises. And why they will continue to do so.

It can't go over 50% because that then starts to trigger take-over rules.

Bright does not have control over Synlait. Ultimately Shareholders do as they are the ones that vote the Resolutions. And as mentioned above Bright only have 39>01% of the vote. Nore do they hold a majority on the Board. For ages there has been 8 Board members - 4 Bright and then a mix of Independent and/or Board nominated.

Synlait is neither a subsidiary of Bright not majority owned but Bright nor Controlled by Bright.

China however may have a different interpretation of what a "subsidiary" means. It could be as simple as something like "holding more than 10 % in a company". (Who knows - sorry I cant be bothered looking up chinese company law)

Edit - to add from the post below "will give Bright Dairy significant influence over the Board". This does not mean control.

[bulltrap]

The document that nobody read but has information everyone wants to know is here https://www.synlait.com/wp-content/uploads/2018/10/Synlait-Milk-Investment-Statement-and-Prospectus_Make-More-From-Milk.pdf
You all might be interested in section 1.3 in particular.

Thanks, I had a look, and confirmed that it isn't stated that Synlait post-IPO (or even pre-IPO) would be a subsidiary company, or that Bright Dairy would be the parent entity/company, or words to that effect.

It does however say that Bright has the special power of appointing 4 of up to 8 directors (hence the NZX waivers), and that there would actually be 7 directors. (I'm still not clear to what extent having a majority of 4/7 directors gives Bright 'control' of Synlait.)

It also says that Synlait's accounts would continue to roll up into Bright's. Perhaps it's this accounting concern that motivates the use of the word 'subsidiary' in the SSE releases.

[Minimoke]

Thanks, I had a look, and confirmed that it isn't stated that Synlait post-IPO (or even pre-IPO) would be a subsidiary company, or that Bright Dairy would be the parent entity/company, or words to that effect.

It does however say that Bright has the special power of appointing 4 of up to 8 directors (hence the NZX waivers), and that there would actually be 7 directors. (I'm still not clear to what extent having a majority of 4/7 directors gives Bright 'control' of Synlait.)

It also says that Synlait's accounts would continue to roll up into Bright's. Perhaps it's this accounting concern that motivates the use of the word 'subsidiary' in the SSE releases.

As I pointed out in a post below the board was made up of 8 directors and has been for ages.

At the moment it only has 7 board members due to the resignation of John Penno. The Board has publicly stated they are searching for a replace of John. Thus bringing it back up to 8 again.

Maybe the "subsidiary" confusion comes from Bright Dairy Holding Limited being a subsidiary of Bright Dairy and Food Co Limited

[CG]

Interpretation of written statements is also important.

A company is a subsidiary if another company:

(i)  controls the make-up of its board
(ii) controls more than half of the maximum number of votes at company meetings
(iii)holds more than half of the shares, or
(iv) is entitled to receive more than half of every share dividend.

Companies Act 1993 — Section 5
New Zealand Legislation

Bright used to own 51% of shares (iii) So, by definition Synlait was a subsidiary.

Now, Bright effectively controls the make-up of its board (i). This is from document I posted above

1)
Non-standard Constitution on listing:
On listing, Synlait Milk will have a non-standard
Constitution for a listed company and Bright
Dairy will have the constitutional rights described
in Section 4.2 (Board, Management and Corporate
Governance). As a consequence, while Synlait
Milk has a non-standard Constitution, Bright
Dairy may have the ability to control the outcome
of Board decisions on certain matters. However,
all Directors, including those appointed by Bright
Dairy, must, under the Companies Act, act in the
best interests of Synlait Milk. The interests of
Bright Dairy as a Shareholder may not necessarily
coincide with those of other Shareholders.
However, as a major Shareholder it may be able to
block or exercise a large degree of infl uence over
resolutions put to Shareholders (whether that be
an ordinary or special resolution)

2) Appointment / Removal of Managing Director

Appointed by the Board but Bright Dairy appointees to the
Board will have four (4) out of seven (7) votes on the Board
regarding the appointment or removal of a Managing Director
(as the Managing Director will be disqualifi ed from voting).
Accordingly, Bright Dairy will, in practice, have the ability to
control the appointment / removal of the Managing Director.


John Penno was Managing Director and/or Board Appointed Director which means he was appointed (and most likely removed) by Bright. So, effectively Bright control the Board. And now Bright have four (4) out of seven (7) which is means they still in control. Appointment of another (8th) director will be decided by Bright as well.

Well, maybe it looks like not a clear cut with (i) but I'd say Synlait is still a subsidiary.

It's not like it's any matter to the current situation. Just pointing out.

[Minimoke]

Interpretation of written statements is also important.

A company is a subsidiary if another company:

(i)  controls the make-up of its board
(ii) controls more than half of the maximum number of votes at company meetings
(iii)holds more than half of the shares, or
(iv) is entitled to receive more than half of every share dividend.

Companies Act 1993 — Section 5
New Zealand Legislation

Bright used to own 51% of shares (iii) So, by definition Synlait was a subsidiary.

Now, Bright effectively controls the make-up of its board (i). This is from document I posted above

1)
Non-standard Constitution on listing:
On listing, Synlait Milk will have a non-standard
Constitution for a listed company and Bright
Dairy will have the constitutional rights described
in Section 4.2 (Board, Management and Corporate
Governance). As a consequence, while Synlait
Milk has a non-standard Constitution, Bright
Dairy may have the ability to control the outcome
of Board decisions on certain matters. However,
all Directors, including those appointed by Bright
Dairy, must, under the Companies Act, act in the
best interests of Synlait Milk. The interests of
Bright Dairy as a Shareholder may not necessarily
coincide with those of other Shareholders.
However, as a major Shareholder it may be able to
block or exercise a large degree of infl uence over
resolutions put to Shareholders (whether that be
an ordinary or special resolution)

2) Appointment / Removal of Managing Director

Appointed by the Board but Bright Dairy appointees to the
Board will have four (4) out of seven (7) votes on the Board
regarding the appointment or removal of a Managing Director
(as the Managing Director will be disqualifi ed from voting).
Accordingly, Bright Dairy will, in practice, have the ability to
control the appointment / removal of the Managing Director.


John Penno was Managing Director and/or Board Appointed Director which means he was appointed (and most likely removed) by Bright. So, effectively Bright control the Board. And now Bright have four (4) out of seven (7) which is means they still in control. Appointment of another (8th) director will be decided by Bright as well.

Well, maybe it looks like not a clear cut with (i) but I'd say Synlait is still a subsidiary.

It's not like it's any matter to the current situation. Just pointing out.

S5(1)(a) (i) is what I think you are referring to which says "controls the composition of the board of the company"

I think you are referring to the IPO document. The more relevant and up to date document for referral is the company constitution (which is a non standard constitution because of this clause) which says (in brief)

"From the time the Company is Listed, for so long as the Bright Shareholder continues to hold between the Initial Percentage and 50% of the ordinary Shares of the Company and is a Bright Group Company, subject to the Initial Percentage being not less than 37% of the ordinary Shares of the Company at the time the Company is Listed, the following provisions of this Part A of Schedule 1 shall apply: 1. The Bright Shareholder has the right to appoint four (4) Directors to the Board (the Bright Directors), and to remove such Directors from time to time by notice in writing to the Company.

And
" the minimum number of Independent Directors shall be three (3)"

So basically up to 4 Bright Directors (subject to Bright not dropping below 37%) and a minimum of 3 Independent directs. Plus more. Which is why there has been 8 Directors and the intention has been stated to restore back to 8 post Pennos resignation.

[bulltrap]

Interpretation of written statements is also important.

A company is a subsidiary if another company:

(i)  controls the make-up of its board
(ii) controls more than half of the maximum number of votes at company meetings
(iii)holds more than half of the shares, or
(iv) is entitled to receive more than half of every share dividend.

Companies Act 1993 — Section 5
New Zealand Legislation

Bright used to own 51% of shares (iii) So, by definition Synlait was a subsidiary.

Now, Bright effectively controls the make-up of its board (i).

IANAL, but as there are required to be independent directors on the board, it's not evident to me that Bright 'controls the make-up of the board'.

That being the case, it appears Synlait was, but ceased to be, a subsidiary in the course of the IPO.

You'd think the offer document would be clearer on whose company this is 

[CG]

S5(1)(a) (i) is what I think you are referring to which says "controls the composition of the board of the company"

I think you are referring to the IPO document. The more relevant and up to date document for referral is the company constitution (which is a non standard constitution because of this clause) which says (in brief)

"From the time the Company is Listed, for so long as the Bright Shareholder continues to hold between the Initial Percentage and 50% of the ordinary Shares of the Company and is a Bright Group Company, subject to the Initial Percentage being not less than 37% of the ordinary Shares of the Company at the time the Company is Listed, the following provisions of this Part A of Schedule 1 shall apply: 1. The Bright Shareholder has the right to appoint four (4) Directors to the Board (the Bright Directors), and to remove such Directors from time to time by notice in writing to the Company.

And
" the minimum number of Independent Directors shall be three (3)"

So basically up to 4 Bright Directors (subject to Bright not dropping below 37%) and a minimum of 3 Independent directs. Plus more. Which is why there has been 8 Directors and the intention has been stated to restore back to 8 post Pennos resignation.

I did not check word by word but seems the company constitution and IPO document state exactly the same about directors appointment.
Are you saying that because Bright can not elect/remove three (3) independent directors they can't control the board of 8? Well, as I pointed out Penno was elected by them and probably removed. So, that situation with directors is open to interpretation. This is why I said it's not a clear cut but in the real world I'd say Bright in a driver seat.

[Minimoke]

IANAL, but as there are required to be independent directors on the board, it's not evident to me that Bright 'controls the make-up of the board'.

That being the case, it appears Synlait was, but ceased to be, a subsidiary in the course of the IPO.

You'd think the offer document would be clearer on whose company this is 

Pre IPO Bright was the majority shareholder of Synlait. This gave them the right to appoint and remove 4 directors. This was when the board had to contain no fewer than 4 directors and up to 7. So bright could essentially control the Board. But Synlait (as the Significant Shareholder) was also entitled to appoint 3 Directors. These were the only 2 shareholders back then.

Post IPO they still had this right but it was refined so it was up to 4 directors within that 37% - 50% shareholding. Synlait lost the right to have directors. But there was the opportunity to have up to 8 directors - 4 being Bright's.

[Minimoke]

I did not check word by word but seems the company constitution and IPO document state exactly the same about directors appointment.
Are you saying that because Bright can not elect/remove three (3) independent directors they can't control the board of 8? Well, as I pointed out Penno was elected by them and probably removed. So, that situation with directors is open to interpretation. This is why I said it's not a clear cut but in the real world I'd say Bright in a driver seat.

This kind of begs the question. Who actually was in real control.

Was it indeed Bright. Or was it Penno. Or was it the CEO.

I'm not convinced it was Bright - as I have said earlier I think Synlait have struggled from being a Mom and Pop family type business to a proper corporate.

Because it seems to me these past few years has lacked any sort of control at all. Just whims to build and borrow more.

[CG]

IANAL, but as there are required to be independent directors on the board, it's not evident to me that Bright 'controls the make-up of the board'.

That being the case, it appears Synlait was, but ceased to be, a subsidiary in the course of the IPO.

You'd think the offer document would be clearer on whose company this is 

Neither am I. But such situation helps to understand why a lawyer is one of the highest paid profession in the world

[CG]

This kind of begs the question. Who actually was in real control.

Was it indeed Bright. Or was it Penno. Or was it the CEO.

I'm not convinced it was Bright - as I have said earlier I think Synlait have struggled from being a Mom and Pop family type business to a proper corporate.

Because it seems to me these past few years has lacked any sort of control at all. Just whims to build and borrow more.

I never was interested in Synlait from an investment point of view and currently looking at it just out of curiosity. This is what I found and maybe this can help to understand Synlait - Bright relationship up untill now.
Penno talking about Bright 10 years ago

"They invested as a major shareholder in a privately-owned company. They then supported the company to grow and develop, didn't intervene in management at all, just allowed it to carry on and execute its strategy, and then allowed themselves to be diluted though an IPO process. And in the meantime quite happy to never take a dividend.

"Forget about the fact they are Chinese. They have been the perfect financial investor. New Zealand financial investors could learn one hell of a lot from watching how they have behaved."
"Synlait had been looking for a patient, long-term investor, not demanding returns immediately and willing to pour the profits back into the company year after year.

"And we happened to find it in China," Penno says.

Bright Dairy had proven "a jolly good choice".

https://www.stuff.co.nz/business/farming/dairy/10522246/Synlait-focused-on-future

[Minimoke]

I never was interested in Synlait from an investment point of view and currently looking at it just out of curiosity. This is what I found and maybe this can help to understand Synlait - Bright relationship up untill now.
Penno talking about Bright 10 years ago

"They invested as a major shareholder in a privately-owned company. They then supported the company to grow and develop, didn't intervene in management at all, just allowed it to carry on and execute its strategy, and then allowed themselves to be diluted though an IPO process. And in the meantime quite happy to never take a dividend.

"Forget about the fact they are Chinese. They have been the perfect financial investor. New Zealand financial investors could learn one hell of a lot from watching how they have behaved."
"Synlait had been looking for a patient, long-term investor, not demanding returns immediately and willing to pour the profits back into the company year after year.

"And we happened to find it in China," Penno says.

Bright Dairy had proven "a jolly good choice".

https://www.stuff.co.nz/business/farming/dairy/10522246/Synlait-focused-on-future

Intersting. When he says "didn't intervene in management at all," seems to confirm what I have thought.

And also seems to indicate Bright havent / don't actually control the company

[snapiti]

Intersting. When he says "didn't intervene in management at all," seems to confirm what I have thought.

And also seems to indicate Bright havent / don't actually control the company

It appears you firmly have blinkers on with this investment..how is that working out for you

[Minimoke]

@snapati Feel free to share your investment argument in favour of Synlait.

In the mean time, heres a chart of A2 and Synlait. Who do we reckon is in the behind the scenes driving seat?

You cannot view this attachment.

[Minimoke]

It appears you firmly have blinkers on with this investment..how is that working out for you

I started this thread nearly 2 years ago. SP then was $3.36. Today its $0.355. So Id say "exceptionally well!"