NZ's a2 Milk shares plunge on US infant formula recall as cereulide detected

* Recalls 3 batches of infant formula sold in the U.S.

* 63,078 tins affected, with about 16,400 units reaching consumers

* Shares down nearly 19%

* No illnesses reported with a2 working with the FDA on the issue (Updates with moves in paragraph 2, analyst comments in paragraph 4)

By Kumar Tanishk and Roshan Thomas

May 4 (Reuters) - New Zealand's a2 Milk (ACOPF) on Monday said it was recalling three batches of its a2 Platinum infant milk formula sold in the U.S. after testing detected cereulide, a toxin associated with foodborne illness.

Shares of the milk producer plunged as much as 18.8% to NZ$7.23, marking its steepest decline since mid-August 2024.

The voluntary recall affects 63,078 tins produced by its associate company, Synlait Milk (SMLKF), with nearly 16,428 units believed to have reached consumers. Synlait said it had manufactured the affected product in compliance with all relevant standards at the time.

"Investors are not just weighing the direct cost of a recall," said Jeremy Sullivan of advisory firm Hamilton Hindin Greene. "They are weighing brand trust, regulatory scrutiny, consumer confidence and the risk that a contained issue creates a wider perception problem."

The company did not say when the affected formula was produced and distributed.

Cereulide, a toxin produced by certain strains of the bacillus cereus bacteria, is heat-stable and can persist in food materials, including infant formula, even after cooking or reheating.

The global baby formula market has been roiled by concerns over tainted products since January, when industry giants like Nestle, Danone and Lactalis issued similar recalls of infant formula products due to the same concerns.

Citi analysts said in a note that while the recall was isolated to a2's U.S. label product, there was a risk that the recall could "make its way on social media in China and cause damage to the brand."

China, alongside other Asian markets, generated nearly 70% of a2 Milk's (ACOPF) total revenue in fiscal 2025.

A2 said the product had been discontinued and pulled from sale before the recall. The company said it was sold via its own website, Amazon (AMZN) and other channels as part of Operation Fly Formula, a White House-led emergency initiative launched in 2022 to alleviate a critical shortage of infant formula in the U.S.

No illnesses have been reported, according to a2 Milk (ACOPF), which is working with the U.S. Food and Drug Administration on the issue. (Reporting by Kumar Tanishk in Bengaluru, additional reporting by Roshan Thomas; Editing by Nia Williams and Thomas Derpinghaus)