Wellington, April 12 NZPA - A rebel dairy company, A2 Corporation, may quit the NZAX -- effectively the NZX's "second board" -- in the course of a "merger of equals" with Australian company Freedom Nutritional Products (FNP), which is listed on the ASX.

A2 made its name with radical claims that conventional milk produced by Fonterra and many other western dairy industries was damaging human health because of it contained proteins known as A1 beta-casein.

But it has never mustered sufficient scientific substantiation to make label claims for therapeutic benefits conveyed by its A2 proteins. Two key founding directors. Howard Paterson -- one of the nation's richest agri-business investors -- and company founder and chief scientist Corran McLachlan, died within six weeks or each other in 2003.

The company, founded in 2000 to commercialise Dr McLachlan's research into milk proteins, never continued with its court case against Fonterra, in which it claimed that under the Fair Trading Act that the dairy giant should put health warnings on its fresh milk products for what A2 claimed were increased risks of diabetes, heart disease and psychological problems.

It said at the time that there was an "industry perception" that going up against Fonterra could damage the reputation of all milk and that it wanted to avoid this.

But the Weekly Times agricultural newspaper in Australia last month reported that A2 Australia's website has started saying "studies suggest" the A1 protein in regular milk "may" put children at risk of contracting type-one diabetes and adults at risk of heart disease.

A2 Australia has only a 0.6 per cent share of the drinking-milk market there but its sales more than doubled last year.

Sydney University nutrition professor Stewart Truswell told the newspaper that there was "no convincing evidence or probable evidence that the A1 casein in cow's milk is a factor causing heart disease ... (or) childhood diabetes".

And a European Food Safety Authority report, which referenced more than 500 publications, found no cause-effect relationship between consumption of the protein and any non-communicable disease, such as childhood diabetes.

Today A2 Corporation said it had signed a deal to give FNP three weeks in which the two companies can undertake due diligence checks.

A2 shares have been worth less than 15c for the past two years and have been trading at around NZ8c on the NZAX.

In February, the A2 company reported a post-tax loss of $717,172 in the six months ending December after posting a loss of $1.99 million in the last half of 2008, but GNP doubled its half year profit, to $A1.8 million.