US private equity group Paine Schwartz Partners has slashed the offer price for its $1.63 billion takeover of Costa Group Holdings (ASX: CGC) by $139 million just two weeks after Australia’s largest grower and packer of fresh produce revealed a deterioration of trading conditions in the June half.
Costa Group, which suffered a 6.2 per cent drop in interim net profit to $37.8 million for the first six months of calendar 2023, announced to the market today that Paine Schwartz Partners (PSP) has put forward a non-binding offer of $3.20 a share – down from the $3.50 a share first announced in July.
The new offer values Costa at $1.49 billion with PSP affirming that this is the ‘best and final price at which the PSP-led consortium can deliver the proposed transaction’.
“The Costa board, together with its financial and legal advisers, is considering the revised non-binding offer and is continuing to engage with PSP regarding the terms and conditions of the offer to enable the Costa board to comprehensively assess whether the revised non-binding offer is in the best interest of shareholders,” the company says in a statement to the ASX this morning.
“There continues to be no certainty that a binding offer will be received or that any transaction will eventuate.”
The scaled-back offer follows Costa’s release on 31 August of its interim results for the six months to the end of June.
Despite a lift in revenue for the period, the result by Costa, the largest citrus grower in Australia, was impacted by a deterioration in late season fruit quality and southern region volume and fruit size downgrades.
Extensive rainfall last year impacted the fruit quality which Costa says will lead to a $30 million hit to the company’s underlying profit for the full year. However, when it released its results last month, it noted that the contributing factors that hurt the bottom line are non-structural and that the ongoing health and productive capacity of the trees are unaffected.
Even after the seasonal hit is taken into account, Costa expects underlying earnings in the current full year to still be higher than calendar 2022 thanks to stable weather and improved pricing in the berry market, as well as improved demand for mushrooms in the winter months.
PSP first took an interest in Costa Group in May this year, when it issued an unsolicited, confidential, non-binding indicative proposal to acquire all of the shares in Costa it didn’t already own. PSP snared a 13.78 per cent stake in Costa on 25 October 2022.
Under that proposal, Costa shareholders were to receive $3.50 cash per share, while also being entitled to any interim dividend for the June half-year of up to 4c per share.
Following four weeks of due diligence, PSP reconfirmed the original indicative proposal of $3.50 per share on 4 July 2023.
The cash offer represented a 34.6 per cent premium to the $2.60 share price at which PSP acquired its stake in Costa last year.
Costa Group's shares slipped to a low of $2.87 in early trading this morning, down 7c from Friday's close.
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