Synlait Milk hits record low as a2 Milk says will cancel exclusive rights

(Reuters) -Shares of New Zealand’s Synlait Milk Ltd hit a record low on Monday after second-largest shareholder a2 Milk said it was cancelling an exclusive manufacturing and supply rights for some of its infant milk formula products.

A2 Milk, which owns 19.83% of Synlait, issued the cancellation notices earlier in the day, saying Synlait’s delivery performance during fiscal 2023 was below the required level for it to maintain such rights.

The companies had signed the agreement more than seven years ago to increase production of some a2 Milk’s infant formula products.

Synlait disputed a2’s right to cancel the agreements, saying that the deal will hold until the matter was resolved per due process. Shares of Synlait fell as much as 7.0% to their record low level of NZ$1.190 as at 0321 GMT, while a2 Milk shares slipped 1.6%.

The dispute resolution process involves a 20-business day period of good faith talks between Synlait and A2 Milk followed by arbitration, said Synlait, while also reaffirming its fiscal 2023 guidance a week ahead of its full-year results announcement.

Removing Synlait’s exclusivity will give a2 a chance to expand production of its English label product at any facility at a time when one of its largest markets, China, introduces stringent regulations for infant formula.