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Costa Group, Australia’s biggest producer of avocados, has received a $1.6 billion takeover bid from its former majority owner but says no deal has been struck yet.
Costa confirmed that US private equity firm Paine Schwartz Partners made an unsolicited offer on May 31 to acquire all shares in Costa for $3.50 apiece in the form of a non-binding indicative proposal.
Costa Group’s share price has risen following news about a takeover bid by a US firm.Credit: Edwina Pickles
Paine Schwartz is a former majority owner in Costa and helped it float on the ASX in 2015 with a 50 per cent stake in the company. It currently owns a 13.8 per cent stake, but indicated in late October that it planned to increase this to 15 per cent and gain a seat on Costa’s board.
Costa’s board of directors granted Paine Schwartz two months to conduct non-exclusive due diligence, which began on June 6, to help the equity firm decide whether to make a binding proposal.
New York-based Paine Schwartz has already received approval from the Foreign Investment Review Board to acquire all Costa’s shares, but Costa said in its statement that “such approval may be required to be refreshed upon finalisation of any co-investors”.
The horticulture giant, which also grows mushrooms, tomatoes, berries and citrus, indicated that any agreement would not be made in the coming days despite media speculation.
“Further due diligence and negotiations on a potential scheme implementation agreement are expected to continue through July,” the company said.
“There is no certainty that the indicative proposal will result in a binding offer or that any transaction will eventuate.”
Costa investors were cheered by the update, and the share price rose nearly 11 per cent to $3.30 in afternoon trading.
The $1.5 billion horticulture company has been under pressure in the past year, like many other food producers, especially as La Nina created poor weather conditions that bruised oranges and its share price as a result.
Avocados have also been growing abundantly, creating an oversupply that pushed down retail prices as well as revenue, and forcing the producer to sell some avocado farms.
Costa was hammered on the sharemarket in late September after announcing that its chief executive, Sean Hallahan, was suddenly stepping down from his position. Some market watchers described that as an “alarming signal”, and it precipitated a 14.2 per cent share price fall at the time.
Costa is not the only Australian food business to have received a takeover bid recently. United Malt, the world’s fourth-largest malt producer and supplier to brewers and distillers, announced on Monday it would be acquired by Malteries Soufflet, the world’s second-biggest malt operator.
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