a2 Milk, Synlait shares rally after settling dispute
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More news: ASX-listed shares in A2 Milk and Synlait have jumped in early trading with the former up 4.4% to $7.02 while the latter surged nearly 13% to 31 cents each.
The dairy producers announced they had conditionally settled a dispute over long-running exclusive supply rights for infant milk formula products sold in China, Australia and New Zealand.
E&P retail analyst Phillip Kimber said overall the settlement of the dispute is positive with a2 Milk now free to further diversify its supply chain including internal production, while Synlait had forgone exclusivity in return for a one-off payment and improved supply terms.
What they said: "We will treat the NZ$25 million [$22.6 million] cash payment as a one-off, and believe any improved supply terms for Synlait will be relatively modest," he said in a note.
Synlait and a2 Milk conditionally settle long-running dispute
The news: Dairy producers a2 Milk and Synlait have conditionally settled a dispute over long-running exclusive supply rights for infant milk formula products sold in China, Australia and New Zealand.
The numbers: The two ASX and NZX-listed companies said on Friday that Synlait’s manufacturing and supply exclusivity will end from 1 January, 2025, with a2 Milk free from any restrictions under the Nutritional Products Manufacturing and Supply Agreement (NPMSA) to source any products.
The NPMSA between the two companies will otherwise remain in place, with Synlait’s obligation to procure minimum annual volumes and certain priority arrangements in favour of a2 Milk continuing to apply.
a2 Milk will make a one-off payment of NZD24.75 million ($22.40 million) to Synlait to resolve the various pricing and other disputes between them, and also contribute to certain Synlait development and US Food and Drug Administration (FDA) registration costs for the supply of US infant milk formula products under the NPMSA.
The context: The two companies had entered into arbitration after a2 Milk notified Synlait in September it was cancelling a decade-long exclusive supply rights for infant milk formula products sold in China, Australia and New Zealand. This followed regulatory uncertainty and weaker sales in China, the world’s biggest infant formula market.
Synlait has since reported a hefty first-half loss and warned of material uncertainties after heavy writedowns amid a slow recovery in business performance. It has also been looking to raise equity and speed up the sale of its underperforming assets.
Under the new deal, Synlait will continue to hold the Chinese regulatory State Administration for Market Regulation (SAMR) registration attached to its Dunsandel manufacturing facilities that produce a2 Milk’s Chinese labelled Infant Formula. Both companies will work together to develop the new product and seek registration from SAMR by December 2029.
The source: ASX announcement
