On Monday, shares of New Zealand’s Synlait Milk Ltd (SML.NZ) reached an all-time low after the company’s second-largest stakeholder, a2 Milk (ATM.NZ), announced that it was terminating an exclusive manufacturing and supply rights agreement for some of its infant milk formula products.
The cancellation notifications were sent earlier in the day by A2 Milk, which owns 19.83% of Synlait. A2 Milk stated that Synlait’s delivery performance for fiscal 2023 was below the acceptable level for it to preserve such rights.
The deal between the companies was inked more than seven years ago, and it stated that they would enhance the production of certain infant formula products made by a2 Milk.
Synlait contested a2’s ability to cancel the agreements and stated that the deal would remain in effect until the appropriate procedures handled the issue. Synlait and a2 Milk saw their share prices drop, with Synlait falling as much as 7.0% to their record low of NZ$1.190 as of 03:21 GMT and a2 Milk falling 1.6%.
Following 20 working days, during which Synlait and A2 Milk will engage in negotiations in good faith, Synlait has stated that arbitration will be the next step in resolving the issue. The company also reaffirmed its fiscal 2023 guidance one week before releasing its full-year results.
In a time when one of its main markets, China, is introducing rigorous requirements for infant formula, the removal of Synlait’s exclusivity will allow a2 the opportunity to expand manufacturing of its English label product at any site.
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