Synlait shares drop as A2M dispute and interest costs weigh
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More news: Shares in Synlait Milk were down nearly 6% to 88 cents each in early trading on the ASX after the dual-listed dairy producer said it expects half-year net profit to be lower because of lower margins and higher finance costs. It also flagged that a confidential binding arbitration to resolve a dispute over a key supply agreement with larger peer and shareholder A2 Milk will now also consider some additional issues. A2Milk shares were up 0.5% at $4.28 each.
A2 Milk-Synlait arbitration to consider additional issues
The news: A confidential binding arbitration to resolve a supply dispute between dairy producers A2 Milk and Synlait will now also consider some additional issues.
The numbers: Both dual-listed dairy producers have agreed to complete the arbitration within 2024. A2Milk shares on the ASX are down 37% so far this year, while Synlait shares have plunged 72% in that period.
The context: The arbitration was agreed after A2 Milk sent Synlait a written notice in September cancelling its long-running exclusive supply rights for infant milk formula products sold in China, Australia and New Zealand. Synlait has continued to dispute a2 Milk’s authority to cancel the supply agreement, which the two companies have held for more than a decade. A2 Milk, which also holds a nearly 20% stake in Synlait, has now referred additional matters to the arbitrator.
These include whether Synlait's obligation to procure a minimum annual volume of product and priority arrangements for A2 Milk "will cease to apply” if the exclusivity provision is found to have been validly cancelled, A2 Milk's intellectual property under the supply agreement, and the question of who bears costs for certain one-off airfreighting. The two companies have seen sales drop amid regulatory uncertainty and weaker sales in China, the world’s biggest infant formula market.
The sources: ASX announcement, ASX announcement
