Costa deal looks shaky as Accolade Wines suitor hovers

Fruit and vegetable supplier Costa Group reports on Thursday.

Further challenging signs are emerging in the Australian agriculture space, with speculation that Paine Schwartz Partners has cooled on its $2.3bn acquisition of Costa Group and that a debt fund is moving in on the struggling Accolade Wines.

Sources have told DataRoom that Paine Schwartz Partners’ acquisition of the fruit and vegetable grower was hanging in the balance this week, about three weeks after the private equity firm was confident that a transaction would complete.

Costa reports its results on Thursday, and investors will be eager to hear more after the company said it expected to provide an update on the transaction in September.

The earlier suggestion was that major shareholders had been keen for the private equity firm to lift its original $3.50 per share offer, but after Costa's trading update revealing a deteriorating outlook and the postponement of results, they have tempered their price expectations.

The predication had been that the private equity firm, which owns 13 per cent of Costa, may lower its offer slightly – say 10c a share – but would still complete.

But now the talk is that a deal may be off the table all together, and if it completes it would certainly be at a lower price.

Paine Schwartz had eight weeks of due diligence from June 6 and many have been puzzled as to why there has been no announcement on a transaction.

Holding it back could be the price offered or the structure of a transaction, where some of Paine Schwartz’s partners may be getting cold feet.

Costa shares closed on Wednesday at $2.91, with its market value at $1.3bn.

Meanwhile, there is speculation that an Australian fund is making efforts to buy Accolade’s debt at 40c in the dollar from its lenders, which are advised by Moelis, as first flagged by DataRoom. The play is to pick up the business at a lower price and break it up.

It comes as The Australian reports that Accolade has sold its House of Arras brand to Handpicked Wines, with sources suggesting the business may be worth about $60m or $70m.

Accolade Wines was purchased by The Carlyle Group in 2018 for $1bn and has loans worth between $500m and $1bn.

As well as its Tasmanian brand, it is thought Accolade, advised by Rothschild & Co, also has South Australia assets on offer.

Last year, debt rating agency S&P downgraded Accolade’s debt rating to junk bond status from BBB minus.

The company, which generates a sizeable proportion of its earnings from the UK, has a $150m revolver facility and a Term Loan B loan worth £350m.

According to IBISWorld, Accolade Wines posted a $98m loss in the 2019 financial year.