Photo: 123RF
- Settlement looks to have met A2 Milk's major demands
- Synlait accepts loss of manufacturing exclusivity
- A2 Milk to participate in much needed Synlait capital raising
Dairy companies Synlait Milk and A2 Milk have reached a conditional settlement of their dispute over the manufacturing and supply of infant formula.
The companies have been in arbitration over the near year-long dispute caused by A2 Milk's (ATM) cancellation of a key part of their long running contract, which gave Synlait exclusivity in supplying infant milk formula products sold in China, Australia and New Zealand.
Synlait's chief executive Grant Watson said settling the dispute was another step in the company's recovery.
"With the disputes behind us, we are pleased to be able to confirm to our shareholders the a2 Milk company's support for our upcoming equity raise."
"This marks genuine progress for Synlait - we are delivering on the turnaround actions needed to reset our performance and better position the company for the future."
Synlait lifeline
The settlement was conditional on Synlait raising fresh capital and refinancing its banking facilities.
ATM holds about 19 percent of Synlait and has committed to participating in the share raising, which has yet to be detailed but is likely to reach into the "hundreds of millions of dollars" to help restore Synlait's financial health.
"a2MC's decision to support Synlait's recapitalisation plan reflects the strategic importance to a2MC of the continued stability of production at Synlait's Dunsandel manufacturing site," the company said in a statement.
Synlait shareholders, including ATM, backed an emergency $130 million loan from major shareholder Bright Dairy in July to save the company possibly falling into administration.
ATM said Synlait had accepted the validity of the cancellation of the exclusive manufacturing deal, which would end at the start of the new year.
It said the agreement also validated ATM's ownership of the intellectual property in the infant formula products, its right to get third parties to make its products, and would require Synlait to make further production available for the development of future A2 products.
ATM would pay Synlait $24.75m to settle price issues, though this was largely money withheld while the dispute was under way.
"a2MC's decision to support Synlait's recapitalisation plan reflects the strategic importance to a2MC of the continued stability of production at Synlait's Dunsandel manufacturing site," the company said in a statement.