New Zealand milk formula maker Keytone Dairy is buying a contract manufacturer in a deal that could be worth as much as $52.6m.

Melbourne food maker Omniblend is the sparkle in the Kiwi’s eye, and already makes protein shakes for ASX hopeful Australian Nutrition and Sports (ANS) and counts Bellamy’s (ASX:BAL) as a customer.

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It’s paying $22.6m upfront: $8m in cash, $10m in stock and $4.6m to pay off the company’s debts.

If it achieves three milestones over the next three years the Omniblend shareholders will get another 23.2m shares, worth $10m today, for every milestone reached.

The news caused Keytone’s indicative share price to drop by 5 per cent on Monday morning.

That’s because while it closed at 52.5c on Friday, before going into a trading halt and after a run up from late April, the deal — and the $18m cap raise that’s to fund it — is priced at 43c.

Shareholders were also whispering about a different kind of takeover ahead of the news — that Keytone was the seller, not the buyer.

Buying extra space

Omniblend is a contract manufacturer of nutritional drinks and powders and has four plants in Victoria. It has been profitable from the start.

Keytone listed last year as a China-focused milk powder manufacturer with ambitions to expand into nutrition drinks and powders. It is also expanding a plant in Christchurch to expand into more highly priced products.

It says pro forma earnings for the combined business for the 2019 financial year should be around $32.4m, largely contributed by Omniblend, although its 2019 profit won’t be able to leaven Keytone’s loss, with the combined entity still looking at a $200,000 loss.

Keytone’s full year loss blew out by over 1000 per cent to $3.3m in the year to March 31, and revenue ticked up slightly from $2m to $2.5m.

Current client ANS’ managing director Tom Lashan says they’ve been working with Omniblend since it launched in 2008. He’s been given to understand the deal won’t cause any problems for them.

Keytone says there is no overlap between what it wants Omniblend for and the products contracted by its current customers.

In other health news today:

Days after poppy farmer TPI Enterprises’ (ASX:TPE) name change kicked in, it’s also settled a patent dispute with fellow Taswegian and rival codeine cooker Tasmanian Alkaloids.

They’ve agreed to secret terms and nixed the lawsuit after TasAlk took now-Palla Pharma to court in February. TasAlk alleged patent infringement over high codeine poppies and Palla disputed the validity of said patents.

The trial was supposed to be heard in October, but it appeared all very nice from the beginning: TPI promised not to sell some products until the case was over, and TasAlk promised to compensate TPI for doing so if they won.