Street TalkPaine Schwartz Partners back for a second bite of...

Street TalkPaine Schwartz Partners back for a second bite of CostaSarah Thompson, Kanika Sood and Emma RapaportSep 17, 2023 – 7.04pmSaveShareListen to this article3 minThings are finally moving at Australia’s biggest horticultural company.Street Talk understands New York private equity firm Paine Schwartz Partners will announce a revised takeover bid for Costa Group on Monday. It is unclear what the new price will be but considering Costa issued a profit warning last month, expectations are it will fall below the previous bid.Costa Group has warned the quality of its citrus produce has taken a dive following “adverse weather”. Darren SeilerThe initial tilt was revealed by this column in early July. Costa later confirmed it had received a takeover offer from Paine pitched at $3.50 a share at the end of May.Its shares jumped almost 12 per cent to $3.31 on the announcement but have since fallen back to $2.94. Weighing on its share price was the release of unaudited earnings results in late August, falling right in the middle of PSP’s due diligence and casting doubt over whether the deal would proceed.The $1.37 billion company reported a worsening outlook, saying earnings before interest, tax, depreciation, amortisation and fair value movements in biological assets would be about $150 million.ADVERTISEMENTCONTENT RESUMES ON SCROLLAdvertisementIt also expects to take a $30 million hit from a deterioration in late-season quality across its citrus business and also pointed to weaker consumer demand for tomatoes.Both factors weighed on the delayed full-year result which saw Costa’s net profit after tax fall 6.2 per cent to $37.8 million. Revenue grew by more than $60 million to $770.7 million, but it faced higher packaging, fertiliser and labour costs. Management guided that its calendar year EBITDA is expected to be ahead of the CY22 result.Macquarie Bank equity analysts said the disappointing full-year commentary was “not ideal” in the context of PSP’s bid but predicted a deal would still occur with “PSP likely having a through-the-cycle view on CGC and should look through short-term seasonal issues”.Paine, which floated Costa in 2015, acquired an almost 14 per cent stake in Costa last October at $2.60 a share, and started talks in April about a takeover offer in the range of $3.20 to $3.30 a share.It followed up with a confidential and non-binding proposal at $3.50 a share on May 31 that valued Costa at $1.6 billion.The Costa board eventually granted Paine non-exclusive due diligence in early July for talks about a potential deal. Paine is understood to have locked in approval from the Foreign Investment Review Board.Citi and Allens are advising Paine. Costa has engaged UBS and King & Wood Mallesons.Costa says weather-related issues are affecting the yield and quality of its produce.RELATEDCosta delays dividend call with takeover offer up in the airCosta is one of the largest fruit and vegetable producers in Australia.RELATEDCrop that! Costa in final takeover talks with private equity investorGet a first look at tomorrow’s headlines. Sign up to the Street Talk First Look newsletter.Sarah Thompson has co-edited Street Talk since 2009, specialising in private equity, investment banking, M&A and equity capital markets stories. Prior to that, she spent 10 years in London as a markets and M&A reporter at Bloomberg and Dow Jones. Email Sarah at sarah.thompson@copyright linkKanika Sood is a journalist based in Sydney who writes for the Street Talk column. Email Kanika at kanika.sood@copyright link.auEmma Rapaport is a co-editor of the Street Talk column. Prior to that,... Read more