A2 Milk Company Ltd (ASX: A2M) shares are storming higher on Friday morning.
In morning trade, the infant formula company's shares are up 6% to $7.12.
Why are A2 Milk shares storming higher?
Investors have been bidding the company's shares higher after it settled its dispute with its dairy processor partner Synlait Milk Ltd (ASX: SM1).
As a reminder, last year A2 Milk gave Synlait Milk written notice cancelling 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.
Synlait Milk did not take kindly to this and after failing with good faith negotiations, the two parties decided that a confidential binding arbitration would be the way to settle the dispute.
Dispute over
This morning, A2 Milk revealed that it has conditionally resolved the various disputes that were subject to this arbitration. This includes the exclusivity dispute, pricing disputes, and various other disputes.
As you might have guessed from the way A2 Milk shares are rising today, the settlement is favourable for the company. It notes the following:
Synlait accepts the validity of a2MC's notice dated 15 September 2023 cancelling the exclusive manufacturing and supply rights enjoyed by Synlait in respect of stages 1 to 3 of a2MC's current infant milk formula products for sale by a2MC in the markets of China, Australia and New Zealand. Synlait's manufacturing and supply exclusivity ceases from 1 January 2025.
In addition, it has been confirmed that A2 Milk owns the intellectual property rights for its IMF products. It adds:
a2MC owns the intellectual property rights for the Product Specifications of the IMF products and is free from any restrictions or obligations under the Nutritional Products Manufacturing and Supply Agreement (NPMSA) to source any Products from any person including Synlait, third party suppliers or internally.
This settlement remains conditional on Synlait Milk completing its equity raise and the refinancing of its existing banking facilities. A2 Milk notes that it has agreed to support and subscribe for shares under Synlait's equity raise, subject to finalisation of terms.
If the conditions to the settlement are satisfied, A2 Milk advised that the arbitration to resolve the disputes will be discontinued. In the meantime, the arbitration hearing has been adjourned.
Following today's strong gain, A2 Milk shares are now up an impressive 45% over the past 12 months.
Synlait Milk shares have also risen on the news and are up 16% at the time of writing.
