Application for waiver from NZX Main Board Listing Rule

NZX Regulation Decision
Synlait Milk Limited (“SML”)
Application for a waiver from NZX Main Board Listing Rule
9.2.1







13 February 2018

NZX REGULATION DECISION
2 of 6


Waiver from Rule 9.2.1
Decision
1. Subject to the conditions set out in paragraph 2 below, and on the basis that the information
provided by SML is complete and accurate in all material respects, NZX Regulation (
NZXR
)
grants SML a waiver from NZX Main Board Listing Rule (
Rule
) 9.2.1 to allow SML to enter
into the Supply Agreement with Bright YouYou, without seeking shareholder approval.
2. The waiver in paragraph 1 above is provided on the conditions that:
the Directors of SML appointed by Bright Dairy (together, the Interested Directors)
will not participate in any SML Board deliberations on, and will not vote to enter into,
the Supply Agreement;
the Directors of SML not appointed by Bright Dairy (together the Non-interested
Directors) certify to NZXR that:
(i) the Supply Agreement has been entered into, and negotiated on, an arm’s
length commercial basis;
(ii) in their opinion, the entry into the Supply Agreement is fair and reasonable
to, and in the best interests of SML and its shareholders who are not related
to, or Associated Persons, of Bright Dairy;
(iii) the Interested Directors will not participate in any SML Board deliberations
on, and will not vote to enter into, the Supply Agreement, and have had no
influence on the decision of the Non-interested Directors to enter into the
Supply Agreement; and
this waiver, its conditions and implications are disclosed in SML’s next annual
report.
3. Certain information on which this decision is based is set out in Appendix One to this decision.
This waiver will not apply if the information provided to NZXR by SML is not, or ceases to be,
full and accurate in all material respects.
4. The Rules to which this decision relates are set out in Appendix Two.
5. Capitalised terms that are not defined in this decision have the meanings given to them in
the Rules.
Reasons
6. In coming to the decision to provide the waiver set out in paragraph 1 above, NZXR has taken
into consideration that:
Rule 9.2.1 seeks to regulate transactions where a Related Party to a Material
Transaction may gain favourable consideration due to their relationship with the
Issuer. NZXR may waive the requirement to obtain approval of a Material
Transaction if it is satisfied that involvement of any Related Party has not unduly
influenced the promotion of, or the decision to enter into, the transaction or its terms

NZX REGULATION DECISION
3 of 6

and conditions. NZXR is satisfied that the granting of this waiver will not offend the
policy behind Rule 9.2.1;
SML has submitted, and NZXR has no reason not to accept, that Bright YouYou
will not receive favourable consideration by reason of the Related Party
Relationship and that the Related Party Relationship has not influenced and will not
unduly influence the decision to enter into, or the terms and conditions of, the
Supply Agreement, as:
(i) entry into, and the terms of, the Supply Agreement have been and will be
negotiated on an arm’s length commercial basis; and
(ii) the decision to enter into the Supply Agreement by SML will be made by
SML’s non-interested Directors, and the directors of SML appointed by
Bright Dairy will not vote to enter into the Supply Agreement or participate in
the deliberations of the SML Board, and will have no influence on the
decision made by the Non-interested Directors;
the Supply Agreement is effectively a revision and extension of the existing supply
arrangements between the parties, and are within the scope of SML’s ordinary
course of business. Requiring SML to seek shareholder approval would therefore
impose a disproportionate burden on SML, as this would delay entry into the Supply
Agreement and require SML to disclose commercially sensitive information where
there is negligible shareholder benefit;
condition 2(a) provides comfort that the Supply Agreement will be negotiated and
entered into on an arm’s length commercial basis, and is terms are fair and
reasonable to, and in the best interests of SML and its shareholders that are not
related to or associated with Bright Dairy; and
there is precedent for this decision.
Confidentiality
7. SML has requested that this application and NZXR’s decision be kept confidential until after
the Supply Agreement is disclosed to the market by SML. SML further requests that the terms
of and value of the Supply Agreement as provided to NZXR be kept confidential at all times
thereafter due to their commercial sensitivity.
8. In accordance with Footnote 1 to Rule 1.11.2, NZXR grants SML’s request.

NZX REGULATION DECISION
4 of 6

Appendix One
1. Synlait Milk Limited (
SML
) is a Listed Issuer with ordinary shares Quoted on the NZX Main
Board and ASX.
2. SML is proposing to enter into an Infant Formula Product Manufacturing and Supply
Agreement (
Supply Agreement
) with Heilongjiang Bright YouYou Nutritional Foods
Company Limited (
Bright YouYou
) in place of the existing supply arrangements between
the parties. This is a consequence of regulatory reform in China which requires long term
manufacturing and supply arrangements in respect of infant formula.
3. The Supply Agreement consists of the following key terms:
Term: The minimum term of the Supply Agreement is 5 years which is currently
expected to commence immediately following the date of this decision; and
Minimum Supply Amount: Bright YouYou will commit to a binding level of volume
of products on a take or pay basis or “reserved capacity”. The Supply Agreement
sets out the minimum annual volumes Bright YouYou is obliged to take in each year
of the 5 year period from 2018 to 2022.
4. Approximately 39% of the shares of SML are held by Bright Dairy Holding Limited (
Bright
Dairy
) which is a wholly owned subsidiary of Bright Dairy & Food Co., Limited (
Bright
Parent
). Bright YouYou is an approximately 90% owned subsidiary of Bright Parent.
5. Bright YouYou is therefore a Related Party of SML for the purposes of Listing Rule 9.2.3(c)
as:
Under Rule 1.8.3 (a) (ii), Bright Dairy and Bright YouYou are Associated Persons
by virtue of being Related Companies, and
Under Rule 1.8.3 (c), Bright Dairy holds more than 10% of the voting shares of SML.
(
Related Party Relationship
).
6. As at the date of this waiver decision, SML’s Average Market Capitalisation is approximately
NZ$1.18 billion.
7. The Supply Agreement constitutes a Material Transaction for the purposes of Rule 9.2.2(a)
as it has the potential to require SML to supply products to Bright YouYou over the 5 year
term with a market value in excess of 10% of SML’s Average Market Capitalisation.
8. SML Senior Management have negotiated the Supply Agreement on SML’s behalf. SML
advises that the Directors of SML appointed by Bright Dairy have not voted to enter into the
Supply Agreement or participated in the deliberations of the SML board, and that Bright Dairy
has not had any influence on SML’s decision to enter into the Supply Agreement.
9. SML have submitted that the pricing under the Supply Agreement will be completely on an
arms’ length basis.

NZX REGULATION DECISION
5 of 6

Appendix Two

Rule 1.6.1 Interpretation

Average Market Capitalisation means, in relation to any transaction, the volume
weighted average market capitalisation of an Issuer’s Equity Securities carrying
Votes calculated from trades on the NZSX over the 20 Business Days before the
earlier of the day the transaction is entered into or is announced to the market.

Rule 1.8 Associated Persons
1.8.1 In the Rules, a person is an Associated Person of another person if the first person
is associated with the other in terms of Rule 1.8.2 to Rule 1.8.7

1.8.2 A person (the “first person”) is associated with another person (the “second
person”) if, in making a decision or exercising a power affecting an issuer, the first
person could be influenced as a consequence of an Arrangement or relationship
existing between, or involving, the first person and the second person.

1.8.3 Without limiting Rule 1.8.2, the first person is associated with the second person
if:

the first person is a company, and the second person is:
(i) Director of that company; or
(ii) Related Company of that company; or
(iii) Director of a Related Company of that company; or
....................

(d) the first person and the second person are acting jointly or in concert;
1.8.7 For the purposes of this Rule 1.8, “Arrangement” means an agreement,
arrangement, or understanding, whether express or implied and whether or not
legally enforceable.

Rule 9.2 New Supply Arrangements with Related Parties

Rule 9.2.1 An Issuer shall not enter into a Material Transaction if a Related Party is, or is likely
to become a direct or indirect party to the Material Transaction, or to at least one of
a related series of New Supply Arrangements of which the Material Transaction
forms part unless the Material Transaction is approved by an Ordinary Resolution
of the Issuer.

Rule 9.2.2 For the purposes of Rule 9.2.1, “Material Transaction” means a transaction or a
related series of New Supply Arrangements whereby an Issuer:

purchases or otherwise acquires, gains, leases (as lessor or lessee) or sells
or otherwise disposes of, assets having an Aggregate Net Value in excess
of 10% of the Average Market Capitalisation of the Issuer;

NZX REGULATION DECISION
6 of 6

....................


For the purposes of Rule 9.2.2(a), “Aggregate Net Value” means the net
value of those assets calculated as the greater of the net tangible asset
backing value (from the most recently published financial statements) or
market value.
Rule 9.2.3 For the purposes of Rule 9.2.1, “Related Party” means a person who is at the time
of a Material Transaction, or was at any time within six months before a Material
Transaction:
a Director or executive officer of the Issuer or any of its Subsidiaries; or
the holder of a Relevant Interest in 10% or more of a Class of Equity
Securities of the Issuer carrying Votes; or
an Associated Person of the Issuer or any of the persons referred to in (a)
or (b), other than a person who becomes an Associated Person as a
consequence of the Material Transaction itself (or an intention or proposal
to enter into the Material Transaction itself); or
a person in respect of whom there are arrangements other than the Material
Transaction itself, intended to result in that person becoming a person
described in (a), (b) or (c), or of whom the attainment of such a status may
reasonably be expected, other than as a consequence of the Material
Transaction itself;
but a person is not a Related Party of an Issuer if:

the only reason why that person would otherwise be a Related Party of the
Issuer is that a Director or executive officer of the Issuer is also a Director
of that person, so long as:
(i) not more than one third of the Directors of the Issuer are also
Directors of that person; and
(ii) no Director or executive officer of the Issuer has a material direct or
indirect economic interest in that person, other than by reason of
receipt of reasonable Directors’ fees or executive remuneration.