Fruit and vegetable company Costa Group (ASX: CGC) has accepted a reduced $1.496 billion acquisition offer from a consortium led by New York private equity firm Paine Schwartz Partners.
The $3.20-a-share deal is down from a July announced indicative offer of $3.50 a share.
The consortium − Paine Schwartz, California-based berries company Driscoll’s Inc. and Canadian public sector pension plan investor British Columbia Investment Management Corporation − currently holds around 19.62% of Costa’s shares.
In a 22 September announcement, Costa said it had entered into a scheme implementation agreement for the rest of the shares to be acquired via a scheme of arrangement.
Costa said its board members had unanimously agreed the deal was in the best interests of shareholders and had recommended shareholders vote in favour in the absence of a superior proposal and subject to an independent expert concluding it is in the best interests of shareholders. Costa directors intended to vote their shares in favour of the deal, subject to the same conditions.
The $2.459 million enterprise value deal represents a 43% premium to Costa’s 25 October 2022 closing price. Paine Schwartz acquired a 13.78% relevant interest in the business after the ASX closed that day at $2.60 a share.
Costa chairman Neil Chatfield said the board had carefully considered a range of factors in arriving at its recommendation including different valuation scenarios, potential risks to Costa’s growth plan and the price at which the company’s shares could trade over the medium to longer term if it continued as an independent listed company.
“While the Costa board has confidence in the long-term fundamentals of the company, the scheme provides certainty for shareholders in an uncertain operating environment by delivering cash proceeds to shareholders at an attractive premium,” he said.
The deal, which is expected to complete in the first quarter of 2024, includes a break fee of $14.9 million against either side applicable in certain circumstances.
Costa is Australia’s leading grower, packer and marketer of fresh fruit and vegetables and operates principally in five core categories: berries, mushrooms, glasshouse grown tomatoes, citrus and avocados. The company operates more than 7,200 hectares of planted farmland, 40 hectares of glasshouses and three mushroom growing facilities across Australia. Costa also has overseas interests with majority-owned joint ventures including six blueberry farms in Morocco and four berry farms in China covering around 750 planted hectares.
As Paine & Partners, Paine Schwartz took a 54.2% stake in Costa Group in 2011 (APE&VCJ, Aug 2011). The Costa family retained the remainder of the business.
After a substantial expansion program involving acquisition of additional properties, primarily mushroom farms, the Geelong-based business was listed on the ASX in 2015 in a $71.748 million float.
Paine & Partners and the Costa family reduced their stakes respectively to 12.2% and 10.3% in the IPO in which shares were issued at $2.25.
Paine & Partners had sold out most of its remaining stake by 2017.
When it bought back into Costa last year, Paine Schwartz said it was seeking to obtain about a 15% stake and was prepared to buy further shares at up to $2.60 a share.
The firm noted then that it saw the shareholding as a long-term investment and “had no current intention of making a control offer”.
News of that investment lifted Costa shares more than 10% to $2.47.
Paine Schwartz’ share purchase came soon after the Costa share price had fallen following an announcement that its citrus crop had been hit by unfavourable weather and this was likely to result in lower earnings than previously forecast. In May, however, the company reported that, with three consecutive years of La Nina events “now behind us”, a return to warmer temperatures and lower rainfall would be positive for its operations.
Costa is taking financial advice on the Paine Schwartz offer from UBS Securities Australia and legal advice from King & Wood Mallesons.
Disclosure: the writer is an investor in Costa Group.
Image: Harvesting blueberries at a Costa property.