The A2 Milk Company Ltd (ASX: A2M) share price is up more than 5% after revealing a settlement with Synlait Milk Ltd (ASX: SM1).
The Synlait share price is up more than 14% after coming to an agreement with A2 Milk.
A2 Milk reaches settlement with Synlait
The two dairy product businesses have conditionally agreed to resolve all disputes, subject to arbitration, including those regarding exclusivity, pricing and other issues.
Synlait has agreed that the exclusivity it has for A2 Platinum and other nutritional products will cease from 1 January 2025, though Synlait expects to continue to produce all products in the short-term.
Synlait will continue to hold the Chinese regulatory State Administration for Market Regulation (SAMR) registration – currently due to expire in September 2027 – for A2 Milk’s Chinese-labelled infant formula products attached to its Dunsandel facility, after settlement takes effect. It’s expected those A2 Milk products will continue to be produced at Synlait’s facility unless A2 Milk can obtain its own SAMR registration to manufacture those products.
As part of the settlement, A2 Milk will make a one-off payment of $24.75 million to Synlait. This includes amounts that had largely been withheld according to terms of matters in dispute. The overall profitability of the products produced for A2 Milk is expected to be moderately impacted due to additional costs and adjustments to manufacturing standards.
However, it was noted that new business opportunities exist within A2 Milk with its potential long-term US infant formula market access and the development of an additional China label product subject to FDA and SAMR approval.
Conditional settlement
This settlement is reportedly conditional on Synlait completing a capital raising and a refinancing of its existing banking facilities.
Synlait said it’s working to finalise the terms of the capital raising and bank refinancing.
Shareholders will be able to vote on these matters at a special shareholders’ meeting.
Final thoughts on the A2 Milk share price
The market seems to be excited by the settlement, and that it’s a good thing for both companies.
I’m not sure what it means for Synlait’s future, and there does seem to be some unresolved details, but if A2 Milk can move on and thrive with an updated supply chain and grow in the US then the future is brighter for the company. But, after a 44% rise in 12 months, the A2 Milk share price does not look cheap to me.
