Costa Group Holdings Limited (ASX: CGC) (“Costa” or the “Company”) today announces that it has entered into a Scheme Implementation Agreement (“SIA”) with a consortium led by Paine Schwartz Partners, LLC (“PSP”)(“Consortium”) for the acquisition of all of the issued shares in Costa the Consortium does not already own, by way of scheme of arrangement (“Scheme”), representing a value of $3.20 cash per share1.
The PSP-led consortium is comprised of entities controlled by PSP, Driscoll’s Inc and British Columbia Investment Management Corporation. Entities affiliated with PSP and Driscoll’s Inc hold in aggregate, approximately 19.62% of the Costa shares currently on issue.
- Under the terms of the Scheme, Costa shareholders will be entitled to receive cash consideration of $3.20 per share1 (“Scheme Consideration”).
- The Board of Costa unanimously considers the Scheme to be in the best interests of Costa Shareholders and recommends shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to an independent expert concluding and continuing to conclude that the Scheme is in the best interests of Costa shareholders.
- The Scheme is subject to certain conditions, including approval by Costa shareholders at a Scheme Meeting and certain regulatory approvals.
- Subject to satisfaction of the conditions, implementation of the Scheme is expected to occur in the first quarter of 2024.
Details of the Scheme Consideration
If the Scheme is implemented, Costa shareholders will be entitled to receive Scheme Consideration of $3.20 per share1.
The Scheme Consideration values Costa’s equity at approximately $1,496 million2, and an enterprise value of approximately $2,459 million3, and represents premia of:
- 43% to the closing share price on 25 October 2022 of $2.23, which represents the last close prior to PSP acquiring a 13.78% relevant interest in Costa;
- 23% to the price of $2.60, the price at which PSP acquired a 13.78% relevant interest in Costa on 25 October 2022;
- 18% to the closing share price on 30 June 20234 of $2.72; and
- 25% to the 3-month VWAP5 to the closing share price on 30 June 2023 of $2.57.
Costa directors unanimously recommend the Scheme
Costa’s Board of Directors unanimously considers the Scheme to be in the best interests of Costa Shareholders and recommends that Costa shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to an independent expert concluding (and continuing to conclude) that the Scheme is in the best interests of Costa shareholders. Each Costa Director intends to vote all of the Costa shares that he or she holds or controls in favour of the Scheme, subject to those same qualifications.
Costa Chairman, Neil Chatfield, said:
“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 favour of the Scheme, subject to the various customary conditions.
The Scheme Consideration represents a premium of 43% to the closing share price on 25 October 2022 of $2.23, being the last close prior to PSP acquiring a 13.78% interest in Costa. 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.”
Details of the Scheme Implementation Agreement
The implementation of the Scheme is subject to various customary conditions. A copy of the SIA, which sets out the terms and conditions of the Scheme and associated matters, is attached to this announcement. Capitalised terms used in this section below have the meaning given to those terms in the SIA.
In summary, conditions for implementation of the Scheme include:
- the independent expert issuing an independent expert’s report which concludes that the Scheme is in the best interests of Costa shareholders (and not changing or withdrawing that conclusion);
- approval of the Foreign Investment Review Board for the Consortium acquiring all of the shares in Costa, noting PSP have already received approval to acquire up to 100% of the shares in Costa;
- approval from the Chinese State Administration for Market Regulation, the Moroccan CompetitionCouncil, and the European Commission;
- approval of Costa shareholders by the requisite majorities and the Federal Court of Australia;
- no Material Adverse Effect to Costa including a reduction in consolidated net assets or consolidated annual EBITDA-S beyond specified thresholds;
- no Costa Prescribed Events; and
- certain other customary conditions.
The Scheme is not subject to any financing condition.
The SIA contains limited termination rights, including that either party may terminate in the event of an unremedied material breach by the other party.
Under the SIA, Costa will be subject to customary exclusivity obligations, including no shop, no talk and no due diligence obligations (the latter two subject to a customary fiduciary exception), notification obligations and a matching right. A break fee of $14.9 million will be payable by Costa to the Consortium and a reverse break fee of $14.9 million will be payable by the Consortium to Costa, in each case, in certain customary circumstances.
Indicative timetable and next steps
Costa shareholders do not need to take any action at this point in time.
A Scheme Booklet containing information relating to the proposed acquisition under the Scheme, reasons for the Costa directors’ recommendation, an independent expert’s report, and details of the Scheme meeting will be prepared and provided to the Australian Securities and Investments Commission for review, and subsequently sent to Costashareholders.
Shareholders will then have the opportunity to vote on the Scheme at a shareholder meeting. Subject to shareholder approval being obtained by the requisite majorities and the other conditions of the Scheme being satisfied, implementation of the Scheme is expected to occur in the first quarter of 2024.
Costa has appointed UBS Securities Australia as financial adviser and King & Wood Mallesons as legal adviser.
This release is authorised by the Costa Group Holdings Limited Board.
About Costa (ASX:CGC) – Costa is Australia’s leading grower, packer and marketer of fresh fruit & vegetables and operates principally in five core categories: berries, mushrooms, glasshouse tomatoes, citrus and avocados.Operations include approximately +7,200 planted hectares of farmland, 40 hectares of glasshouse facilities and three mushroom growing facilities across Australia. Costa also has strategic foreign interests, with majority owned joint ventures covering six blueberry farms in Morocco and four berry farms in China, covering approximately 750 planted hectares.
For further information contact: Michael Toby – Corporate Affairs Manager T: +613 8363 9071
1 Less any permitted dividend of up to $0.04 per Costa share declared and paid to Costa shareholders prior to the implementation of the Scheme
2 Calculated based on 464,709,793 fully paid ordinary shares and 2,635,206 options or rights to subscribe for Costa shares currently on issue
3 Calculated based on 2 July 2023 net debt of $350.1 million, lease liabilities of $582.9 million, equity accounted investments of $34.8 million and non-controlling interests of $65.5 million
4 Being the closing price on the day immediately prior to market speculation around a possible change of control proposal
5 Volume weighted average price