What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
The former Federated Farmers dairy chair says farmers are waiting to see what happens to the listed milk processor.
Leferink is one of many Synlait suppliers who have handed a twoyear cessation notice to the troubled processor. He’s unhappy with the company’s performance and payout. Synlait has about 300 suppliers, sending milk to its two plants – at Dunsandel and Pokeno. It has revealed that more than half of its supplier base wants to leave.
“Let me make it clear, we have no problem with Synlait’s staff, they are excellent,” Leferink told Dairy News.
“What we are disappointed with is Synlait’s performance and payout. They are also $1 lower in the advance compared to Fonterra which creates quite a bit of cashflow stress,” says Leferink.
In April, Synlait reported a $96 million half-year loss. Last month, it signalled fullyear earnings will be at the lower end of its $45m-$60m range, before expected one-off charges.
Leferink believes Synlait directors should have “rattled the cage earlier”.
He noted that it’s a company problem, not an industry one. Synlait overstretched itself when it built a plant in the North Island a couple years ago and made some other regrettable decisions, according to Leferink.
He also believes a float of Synlait could be on the cards
Leferink says farmer suppliers feel they can’t do anything but “wait and see what happens next”.
He says suppliers have had hard conversations with both management and the board, where the suppliers’ position has been made clear.
“If they want to get their suppliers back, they need to do better than what they do now.”
Leferink says Synlait burned through a lot of trust and goodwill in its supplier base over the past season due to its payout not matching Fonterra’s and the financial struggles that resulted from that.
Synlait chief executive Grant Watson believes the company still presents an excellent value proposition to farmers, “with our best-in-class Lead with Pride programme and attractive specialty milk premiums [being] stand out features”.
“We are pleased to confirm a competitive advance rate profile for the 2024/25 season, with an opening advance rate of $6/kgMS,” he says.
“The new profile accelerates the proportion of the full season milk price paid throughout the season.”
Synlait’s latest market update piled more bad news on shareholders and sending its share price to a new low of 30c last week. The company is now forecasting that it’s unlikely to meet three of its current banking covenants as at 31 July 2024.
