The A2 Milk Company Ltd (ASX: A2M) share price is under pressure on Tuesday.
In morning trade, the infant formula company's shares are down 1% to $4.21.
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What's going on with the A2 Milk share price?
Investors have been selling the infant formula company's shares this morning after it released an update on its supply arrangement with Synlait Milk Ltd (ASX: SM1).
Last month, the company announced that it had given 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.
A2 Milk advised that it gave its notice due to Synlait's delivery in full and on time performance (DIFOT) during FY 2023, which fell below the level required to maintain such exclusive rights.
But Synlait was refusing to go down without a fight. It disputed the notice, which meant the matter would need to be resolved through good faith negotiations.
What's the latest?
This morning, A2 Milk advised that the two parties have now completed a 20-business day period of good faith negotiations. However, these negotiations have not resolved the dispute.
As a result, the matter will now be submitted to confidential binding arbitration, as provided for under the dispute resolution provisions of the manufacturing and supply agreement.
With both sides appearing to believe that they are in the right, it remains unclear which way the arbitration will lean.
In the meantime, the supply agreement between the two parties remains in place despite the removal of exclusivity. Management previously advised that it expects that pricing terms and other key terms of the supply agreement will continue to apply.
