Synlait Milk and The A2 Milk Co. have reached a resolution in a long-standing dispute regarding contracts and pricing.
The settlement, announced on 16 August, involves A2 Milk making a one-time payment of NZ$24.8 million (approximately $14.9 million) to Synlait as compensation for previously withheld payments. This agreement marks a significant move in the food and drink business sector, particularly within the dairy industry.
The conflicts outlined date back to September when A2 Milk indicated its intent to cancel an exclusivity supply agreement with Synlait, which had warned of a potential net financial loss. This dispute has affected both companies, and the resolution is essential as food and beverage industry trends evolve.
Under the pre-existing Nutritional Powders Manufacturing and Supply Agreement (NPMSA), Synlait was responsible for supplying dairy products, ingredients, and infant formula to A2 Milk—a contract requiring a three-year notice for cancellation.
As part of this settlement, Synlait announced in a stock-exchange notification that the NPMSA “will cease to apply” from 1 January. Despite this, Synlait expects to continue producing “all products” under the agreement in the near term.
A2 Milk confirmed that “Synlait accepts the validity” of the termination notice for the manufacturing and supply contract, initiated on 15 September. This contract pertains specifically to A2 Milk’s A2 Platinum formula stages one to three, aimed at markets in China, Australia, and New Zealand.
The resolution of “all disputes subject to arbitration” hinges on Synlait successfully completing a capital raise and refinancing its bank debts, as stated by both parties in their announcement.
Synlait has faced significant financial challenges, culminating in multiple profit warnings and ongoing negotiations with creditors regarding deferred debt payments. Recently, in July, Synlait’s largest shareholder, Bright Dairy from China, which holds a 39% stake compared to A2 Milk’s 19.8%, committed to a NZ$130 million bailout loan.
Today, Synlait expressed its intention to “finalise the terms of the equity raise and the bank refinancing” ahead of the shareholder vote, scheduled for a date that remains to be confirmed.
“Provided the settlement conditions are satisfied, the arbitration to resolve the disputes will conclude. Meanwhile, the arbitration hearing regarding exclusivity and other matters has been postponed,” stated Synlait.
CEO Grant Watson emphasized, “Settling these disputes is another positive step forward in our business recovery plan. With the disputes resolved, we are glad to affirm to our shareholders The a2 Milk Company’s support for our forthcoming equity raise.”
“This demonstrates meaningful progress for Synlait – we are successfully enacting the turnaround actions essential to restore our performance and strategically position the company for future success,” he added.
A2 Milk’s filing was signed by CEO David Bortolussi, who did not provide individual remarks but mentioned that the company “has agreed to support and subscribe for shares under Synlait’s equity raise, pending finalisation of terms.” This decision reflects “the strategic importance to a2MC of the continued stability of production at Synlait’s Dunsandel manufacturing site.”
The Dunsandel plant plays a key role in this agreement. “Synlait will offer A2 Milk an additional slot at Dunsandel for a potential new China label registered product. A2 Milk and Synlait will collaborate to develop the new product, prepare the SAMR registration dossier, and seek approval from SAMR by December 2029,” stated A2 Milk.
SAMR, or the State Administration for Market Regulation, is the necessary license to sell and market infant formula in China. Synlait acknowledged that its SAMR for the Dunsandel site expires in September 2027 and will retain ownership of the registration following the settlement. This applies to A2 Platinum formula stages 1-3.
While A2 Milk has the option to apply for its own SAMR license, regarding the agreed payment to Synlait under the pricing dispute, A2 Milk commented: “This payment largely encompasses amounts previously withheld in accordance with the terms of the NPMSA, pending resolution of the disputes.”
“Pricing for several existing products manufactured by Synlait will see an incremental increase, and Synlait will benefit from enhanced purchase order deposit payment terms.”
