Synlait Milk will commission its new Pokeno plant before the end of the month despite an ongoing legal battle.
"We are technically in breach of the covenant now, even as we build on the land," chief executive Leon Clement told BusinessDesk. "Starting to run it and commission it doesn't change that situation."
Clement said in order to stop Synlait from commissioning, the other party would have to file an injunction for it to suspend operations and that would have to be successful.
He said the company feels "comfortable" it can commission given a court would look at the potential loss or benefit to both sides and he noted there isn't any significant development on the neighbouring land.
He said Synlait has made a "reasonable offer that we think reflects the other party's best-case outcome if they were to win in court or we run it through the courts."
The firm is currently waiting for a response.
However, "we are not going to bow to bullying or the fact that we are a public company and make some unreasonable settlement," Clement said.
If the offer is rejected, he said they will go to court.
Synlait's February 2018 land purchase for the plant was conditional on the seller, Stonehill Trustee, procuring the removal of the covenants which restrict the site's use to grazing, lifestyle farming or forestry. A High Court decision in November removed the covenants and then Synlait took the title of the land.
However, the owner of adjacent land, Ye Qing, won an appeal in the Court of Appeal in May which overturned the decision to remove the covenants. In June, Synlait filed an application to appeal to the Supreme Court to have the decision overturned. A hearing has been scheduled for October 21 to consider whether leave for an appeal will be granted.
Synlait's shares recently traded at down 9.23 per cent at $8.75. Hamilton Hindin Greene investment advisor Jeremy Sullivan said investors were disappointed by the company's net profit number.
Earlier it reported a 10 per cent lift in net profit to $82.2 million in the year ended July 31, but Sullivan said the market was expecting $87m to $88m so "that's roughly a 7 per cent miss."
He said uncertainty around Pokeno is also weighing on the stock.
"It's not an ideal place to be. It looks like they are going to court on the 21st of October," he said.
Sullivan also noted the renegotiation of their pricing with their main customer A2 Milk had also weighed on the result. "It looks like A2 has some good pricing power there … and that's also a bit of a negative."
He said the pricing pressures show that A2 has the "upper hand" when negotiating.
A2 Milk last traded up 0.7 per cent at $14.62.