Synlait to sell North Island assets to Open Country Dairy

NEW ZEALAND — Open Country Dairy is set to sign a deal to acquire Synlait Milk’s North Island milk supply, a move that comes as Synlait grapples with ongoing financial challenges.

The potential acquisition comes as shift in Synlait’s strategy, particularly after a series of performance issues have led to considerable losses in their North Island operations.

Earlier this week, Synlait announced its plan to raise US$217.8 million through a placement to its two largest shareholders—Bright Dairy and The a2 Milk Company.

Should shareholders approve the deal, Bright Dairy will contribute US$185 million at an issue price of 60 cents, thereby gaining a controlling stake in the company.

Meanwhile, The a2 Milk Company will inject US$32.8 million at an issue price of 43 cents, maintaining its 19.8% stake. This arrangement, however, is expected to dilute the stakes of minority shareholders.

Synlait’s North Island operations have been underperforming, with its assets in the region generating significant losses.

The company’s newest dairy facility in Pokeno, Waikato, which was designed to produce both infant-grade dairy products and plant-based advanced nutrition products, has not lived up to expectations.

The facility, along with a blending and canning site near Auckland airport and a warehouse in Wiri, employs approximately 270 full-time employees.

Since 2018, Synlait has invested about US$450 million in its North Island assets as part of a broader strategy to diversify its product offerings and geographic footprint.

However, the anticipated demand for advanced nutrition products, including potential demand from The a2 Milk Company, has not materialized as expected.

The COVID-19 pandemic and shifting economic conditions have further compounded these challenges, leading to low plant utilization and projected losses exceeding $20 million in EBITDA for the fiscal year 2024.

As part of its ongoing strategic review, Synlait explored several options for its North Island assets, including focusing solely on advanced nutrition products, divestment, or even mothballing the plant.

However, after a thorough analysis, the company concluded that selling the assets might be the most viable solution. Continuing operations under current conditions would be economically unfeasible and would require significant additional funding.

Open Country Dairy’s acquisition of these assets would allow Synlait to cut its losses and refocus its resources on more profitable ventures.

For Open Country Dairy, the deal presents an opportunity to expand its milk supply network in New Zealand’s largest milk-producing region, where competition among processors is fierce.

The outcome of this deal could have lasting implications for both companies as they navigate the challenges of the global dairy market.

Subscribe to our food and agriculture industry email newsletters that provide busy executives like you with the latest news insights and trends from Africa and the World. SUBSCRIBE HERE