A2 Milk Company Ltd (ASX: A2M) shares are underperforming on Friday.
In morning trade, the infant formula company's shares are trading flat at $4.26.
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What's going on with A2 Milk shares?
Today's underperformance is likely to be attributable to the release of an update on its dispute with its dairy processing partner Synlait Milk Ltd (ASX: SM1).
This is in relation to A2 Milk's decision to cancel the exclusive manufacturing and supply rights for stages 1 to 3 of its current infant milk formula (IMF) products for China, Australia, and New Zealand.
After failing with a 20-business day period of good faith negotiations, in October the two parties decided that a confidential binding arbitration would be the way to settle the dispute.
According to today's update, the parties have jointly appointed the arbitrator and are agreeing on an arbitration agreement and timetable for the matters to be resolved during 2024.
Synlait revealed that the arbitration will also include the following issues:
Whether the obligation on Synlait under the NPMSA to procure the supply of a minimum annual volume of product, and certain priority arrangements in favour of The a2 Milk Company under the NPMSA, will cease to apply if the exclusivity provision under the NPMSA is found to have been validly cancelled; What, if any, intellectual property under the NPMSA, and related know-how in the products, is owned by The a2 Milk Company; and Which party is responsible for certain one-off airfreighting costs.
New disputes
In other news, Synlait and A2 Milk have been squabbling over new pricing and have just failed in good-faith negotiations. As a result, Synlait plans to refer the pricing matters to another confidential binding arbitration.
A2 Milk has responded to Synlait's announcement, stating:
a2MC remains confident in its position in respect of all of the issues in dispute in the Exclusivity Arbitration, as noted in Synlait's announcement. The Company is also confident in its position overall in relation to the "New pricing and other matters in dispute", as noted in Synlait's announcement and which largely relate to matters initially raised by a2MC. All of these matters are commercial in nature and are not expected to have any operational impact on a2MC.
