Freedom Foods, which is a2's biggest shareholder, owning 19.2 per cent, had hoped to take over a2 in conjunction with US dairy giant Dean Foods.

But the bid collapsed after the US regulator launched an insider trading investigation into Dean.

This allowed a2 to steam ahead with is capital raising plans, which it had  agreed to halt after Dean and Freedom registered an expression of interest in the company in June.

A2 said the cash would help fuel its expansion across China, the US and Britain, after sales of its Platinum infant formula brand surged higher than it expected.

The capital raising, which Goldman Sachs has fully underwritten at a floor price of NZ67¢ a share, caught Freedom Foods' chief executive Rory Macleod by surprise.

A company spokeswoman said Freedom would not participate in the capital raising.

"Freedom will not be participating at all," she said.

Caught off guard

Freedom's shock comes after a2 chief executive Geoff Babidge was understood to be equally caught off guard when Freedom made the takeover bid in June.

It is believed Mr Babidge thought Freedom was selling down its stake, after it reclassified its a2 shares as being available for sale when it released its half-year financial results in March.

Mr Babidge was in the US, believed to be sounding out interest for a capital raising, when he received the call from Mr Macleod regarding the conditional bid. One of the conditions was to dump the equity raising, which a2 agreed to do.

It is understood Mr Macleod and Perich patriarch Tony Perich were concerned about the amount of cash a2 was spending as part of its expansion into the US. It is planning to spend $US20 million ($27.8 million) over the three next years, launching its products in American supermarkets.

The investment follows a2 revenue surging 40 per cent to $NZ155 million in FY15, thanks to strong demand for Platinum infant formula. But the strong growth led to a net loss of $NZ2 million after a slim $NZ10,000 profit in 2014.

The company is hoping to raise the new cash by tapping institutional investors and Mr Babidge said it was in the interests of all shareholders for the shareholder base to be broadened.

Freedom ruling itself out means its holding will shrink to 17.6 per cent, based on the new shares being issued at the floor price of NZ67¢ each.

Derailed takeover plan

Fairfax Media revealed in August that the insider trading investigation into Dean by the US regulator had derailed the takeover plan. The investigation reportedly involved golfer Phil Mickelson and professional sports gambler William T. Walters.

Mr Babidge said on Thursday sales in China, Australia, New Zealand and its other Asia businesses for the first two months of FY16 were ahead of budget.

"Infant formula is emerging as a more significant and meaningful growth driver for the company than expected, with a current focus on sales in Australia and New Zealand and in China," Mr Babidge said.

"In addition to the growth in infant formula, the prospects for growth of a2 Milk-branded whole milk powder are also encouraging."

A2 Milk's Platinum branded formula, which launched in August 2013, has become the second-biggest infant formula product in Australia, Coles' sales data compiled by research firm Nielsen shows. Platinum sales leapt 445 per cent to $41.67 million for the 12 months to June 30.

Mr Babidge said in September the company's infant formula sales were on track to triple this financial year, adding sales in July and August were about $13 million.

On Thursday he said sales in September were consistent with that growth.

The company also increased recently its debtor finance facility from $3 million to $10 million to "provide additional working capital flexibility", he said.

The company was negotiating a further bank guarantee facility of $NZ10 million, he said.