A2 Milk Company Ltd (ASX: A2M) shares are under the spotlight today after revealing how it would vote at the Synlait Milk Ltd (ASX: SM1) meeting.
Synlait is a manufacturer and supplier for A2 Milk. Synlait is New Zealand-based and A2 Milk is one of its main shareholders.
Upcoming meeting
The meeting that’s being held today at 2pm is to vote on the resolution to approve the proposed idea of entering into a $130 million shareholder loan to be made available to Synlait by Bright Dairy International Investment Limited, a related company of Bright Dairy Holding Limited, which is the 39% shareholder of Synlait.
If this resolution is approved, Synlait will fully draw down the loan to meet the $130 million payment due to its banks on 15 July 2024.
A2 Milk announced to the market how it intends to vote today.
The infant formula company said it has been in discussions with Synlait about the broader recapitalisation plan, which includes the shareholder loan as well as Synlait’s proposed capital raising and concurrent refinancing of its bank facilities, and various other matters.
A2 Milk said it “continues to have concerns and will engage in discussions with Synlait in the coming weeks.”
In the meantime, A2 Milk said it had advised Synlait that it will vote in favour of today’s resolution to approve the $130 million shareholder loan.
If this loan were not approved then, according to Synlait, there would be the board has “limited options available to them”. Indeed, Synlait said if the $130 million payment is not made and the banks do not agree to alternative arrangements, the board believes Synlait will “need to cease trading or initiate a formal insolvency process.”
The independent directors of Synlait had recommended that shareholders vote in favour of the resolution. Bright Dairy cannot vote in favour of the resolution.
Final thoughts
A2 Milk didn’t have much choice – if it didn’t vote yes (or provide Synlait with funding itself) then Synlait would face significant problems and A2 Milk’s investment in the dairy manufacturer could have become worthless.
A2 Milk shares have risen 60% this year, whereas the Synlait share price is down 70%.
I’m not sure if I’d want to buy either business at the moment – there is a lot of uncertainty with Synlait and A2 Milk shares are now priced much higher. There are plenty of other ASX growth shares that could be more appealing.
