September 25, 2023

By Lynda Kiernan-Stone, Global AgInvesting Media

A consortium led by Paine Schwartz Partners (PSP) including Driscoll’s Inc. and British Columbia Investment Management Corporation, who collectively with their affiliates hold approximately 19.62 percent of the company, have successfully entered into a scheme implementation agreement for the takeover of leading Australian fresh fruit and vegetable grower, packer, and distributor Costa Group. 

The deal has been cooking for a while. In May of this year, PSP placed an initial all-cash offer on the table of A$3.50 per share. However, following Costa Group’s announcement on August 24 that unfavorable growing conditions led to a write down of $30 million, PSP cut its offer by $139 million.

Ultimately, a revised offer was made at A$3.20 per share and was accepted, resulting in an enterprise value for Costa Group of approximately A$2.46 billion (US$1.6 billion). 

Costa operates across five key categories: berries, mushrooms, glasshouse tomatoes, citrus, and avocados. The company’s interests are vast, including more than 7,200 planted hectares (17,792 acres) of farmland, 40 hectares (99 acres) of glasshouse facilities, and three mushroom growing facilities across Australia. It also controls majority owned joint ventures encompassing six blueberry farms in Morocco and four berry farms in China totaling approximately 750 planted hectares (1,853 acres). 

Paine Schwartz has a history with Costa reaching back more than a decade. It made its first investment in Costa Group in 2011 (when it was still under the name Paine & Partners). 

Four years later in 2015, Paine Schwartz completed an IPO for Costa Group, a portfolio company in the firm’s Fund III, earning A$550 million at the time (US$351.8 million today), representing the country’s second largest IPO that year. 

And more recently in October 2022, an entity managed by Paine Schwartz increased its stake in the company to 13.78 percent at an investment of nearly $161 million, adding to the firm’s existing 2.4 percent stake. 

Board Approved

As conditions continue to evolve, Costa’s Board of Directors announced it unanimously considers this takeover scheme to be in the best interests of Costa’s shareholders, and recommended that stakeholders vote in favor of the deal, adding that each Board member intends to vote all of their held or controlled shares in favor. 

“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,” said Neil Chatfield, chairman, Costa. “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 25 October 2022 of $2.23, being the last close prior to PSP acquiring a 13.78 percent interest in Costa.”

Chatfield continued, “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.”

As is usual, certain conditions must be met before the deal can be finalized, including:

~ An independent expert issuing a report that concludes that the scheme is in the best interest of Costa’s shareholders.

~ Approval being granted by Australia’s Foreign Investment Review Board (FIRB) for the consortium’s takeover. (It is noted however, that PSP has already been granted approval to acquire 100 percent of the shares in Costa.)

~ Approval from the Chinese State Administration for Market Regulation, the Moroccan Competition Council, and the European Commission. 

~ And approval from Costa shareholders, among other customary conditions. 

If all conditions are successfully met and satisfied, implementation of the Scheme can be expected to be concluded in the first quarter of 2024.

~ Lynda Kiernan-Stone is editor in chief with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Unconventional Ag. She can be reached at lkiernan-stone@globalaginvesting.com.

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