Paine Schwartz A$1.5bn Costa Group deal gets green light

Costa Group chairman Neil Chatfield said the deal is in the best interests of shareholders, despite Paine Schwartz having reduced its offer from A$1.6bn.

Costa Group has accepted Paine Schwartz Partners revised offer of A$1.5 billion ($966 million; €908 million) to acquire the remaining shares in the business that it does not already own.

Paine Schwartz initially made a non-binding all-cash offer of A$3.50 per share on May 31, but this was revised down on September 18 to A$3.20 per share following a “deterioration in the outlook” announcement from Costa Group on August 24.

Costa Group said in the statement that it would see a “deterioration in the outlook for later-season quality across our citrus category,” which was estimated to have a negative impact of around A$30 million on full-year EBITDA-S (stock-based compensation).

This was attributed to weather impacts that have led to lower production volumes in southern regions of Australia and an overhang from La Niña climatic conditions contributing to lower-than-expected fruit sizes.

The firm also said that table grape harvests were around 40 percent lower across the sector compared with the previous calendar year – also due to the weather in 2022 – leading to an EBITDA-S impact of A$9 million in H1 2023.

Paine Schwartz previous offer valued the business at A$1.6 billion. The New York-based firm is acting alongside Driscoll’s and British Columbia Investment Management Corporation to make the acquisition.

Costa Group chairman Neil Chatfield said in a statement: “The board is committed at all times to acting in the best interests of shareholders and with this firmly in mind, carefully considered a range of factors in arriving at its recommendation.

“This included a number of different valuation scenarios, potential risks relating to the future execution of Costa’s business growth plan, and the price at which Costa shares could trade over the medium to longer term if it continues as an independent listed company.

“Accordingly, the Costa board has unanimously recommended that Costa shareholders vote in favor of the scheme, subject to the various customary conditions. The Scheme Consideration represents a premium of 43 percent to the closing share price on October 25, 2022 of $2.23, being the last close prior to PSP acquiring a 13.78 percent interest in Costa.”

Paine Schwartz acquired its 13.78 percent stake in October at a price of A$2.60 per share.

Paine Schwartz previously invested in Costa Group when the former was known as Paine & Partners, acquiring a 50 percent stake in July 2011 through its third fund. After further investment in the firm, Paine & Partners floated Costa on the ASX in July 2015.

Costa now operates more than 7,200ha of planted farmland, 40ha of glasshouse facilities, and three mushroom-growing facilities, as well as majority-owned joint ventures operating six blueberry farms in Morocco and four berry farms in China.