NEW ZEALAND– Synlait Milk and The A2 Milk Company have reached a resolution over their contractual and pricing disagreements, bringing an end to an almost year-long dispute.
As part of the settlement, A2 Milk has agreed to pay Synlait a one-off payment of NZ$24.8 million (US$14.9 million) to cover withheld payments.
The conflict between the two New Zealand dairy giants, with A2 Milk being Synlait’s second-largest shareholder, began in September when A2 Milk announced plans to cancel an exclusivity supply arrangement.
This announcement came as Synlait warned of impending financial losses. The Nutritional Powders Manufacturing and Supply Agreement (NPMSA), under which Synlait supplies dairy ingredients and infant formula to A2 Milk, stipulates a three-year notice period for cancellation.
In an announcement to the stock exchange, Synlait confirmed that the NPMSA “will cease to apply” from January 1, although it will continue producing products under the agreement in the short term.
Meanwhile, A2 Milk acknowledged the validity of the contract termination notice issued on September 15, affecting its A2 Platinum formula distributed in China, Australia, and New Zealand.
The settlement of the disputes, which were subject to arbitration, hinges on Synlait completing a capital raise and refinancing its bank debt.
Synlait has been navigating financial difficulties, marked by profit warnings and extended debt negotiations. In July, the company’s largest shareholder, China’s Bright Dairy, agreed to a NZ$130 million bailout loan.
Synlait is working to finalize the terms of the equity raise and bank refinancing, with shareholder approval to be sought at an upcoming meeting.
CEO Grant Watson described the settlement as a positive step in Synlait’s recovery plan, noting the support from A2 Milk for the equity raise as crucial for future stability.
A2 Milk’s managing director and CEO, David Bortolussi, emphasized the strategic importance of maintaining stable production at Synlait’s Dunsandel manufacturing site.
As part of the settlement, Synlait will provide A2 Milk an additional production slot at Dunsandel for a new China label registered product, aiming for registration by December 2029.
The State Administration for Market Regulation (SAMR) registration held by Synlait for the Dunsandel site expires in September 2027. Synlait will retain ownership of this registration post-settlement, while A2 Milk can pursue its own SAMR licence.
Regarding the payment dispute, A2 Milk stated that the settlement payment largely consists of amounts withheld per the NPMSA terms, pending dispute resolution.
Additionally, pricing on certain existing products will see incremental increases, and Synlait will benefit from improved purchase order deposit terms.
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