Fonterra's power to declare termination of supply agreement with Bellamy

Fonterra is in the best position to declare the termination of its supply agreement with Bellamy. The termination can be triggered if a shareholder group controls more than 30 percent of Bellamy's capital. The disclosure of the agreement came along with the announcement of Laura McBain's replacement -- Bellamy's former CEO. McBain was replaced by interim CEO Andrew Cohen.

Rob Woolley, Bellamy's chairman, did not discuss the entire revision but implied that there had not been any approaches that can reverse the situation. He did not disclose the possibility of raising additional equity.

Meanwhile, Bellamy decided to move away from discounted sales through e-commerce platforms. It's the company's way to reset its approach to China. Woolley said that China is a very opaque market and it is important to get reputable products going into the country.

A spill motion is expected to be voted in February, which can grab control of the struggling Bellamy's board. Shareholder Jan Cameron claimed that the group of Bellamy's shareholders may command 35 percent of the capital.

Cameron said that she had not changed her mind on the decision of changing the board. She said that it should be reinforced due to the lack of responsibility on the board's part.

Cohen said that they are focusing on reducing the cost and rebuilding the cash flow of the company that will help its financial stabilisation. The raw materials will be checked and inventories will be trimmed down. He added that the company is rethinking its customer strategy. They were expecting a lowered revenue compared to its projected profit. The original projection for December 2016 is $120 million but it can be lowered to $115 million.

Bellamy has suffered due to the low demand for infant formula. There were several consequences including shortfall payments to the suppliers, excess in ingredients and increased instant formula inventory.