Fresh buzz over Blackmores as ex-chair airs concerns; Costa rumours sprout once more

The share price of vitamin supplements business Blackmores is at its lowest levels in five years.

There is renewed talk that a prospective buyer – probably a trade buyer from overseas – is looking at vitamin supplements business Blackmores with its $65 share price trading at some of its lowest levels in five years and its market value at $1.3bn.

It comes with suggestions Driscoll’s may be working with Paine Schwartz Partners to buy Australian-listed fruit and vegetable grower and marketer Costa Group down the track.

Should the deals eventuate, it will break the drought for major mergers and acquisitions in the consumer space, hampered by floods and disrupted earnings from the global pandemic, and also the rising cost of debt that means private equity firms cannot make deals stack up at prices that earlier made sense.

One market expert said both Blackmores and Costa are perennial candidates for mergers and acquisitions, and Blackmores’ 22 per cent shareholder, Marcus Blackmore – the company’s former longstanding executive chairman and board member from 1973 to 2021 – has made it clear he is a seller of the company founded by his father, Maurice.

He earlier hired Rothschild & Co to scan the market for a buyer, and in recent weeks was vocal at the annual general meeting with his discontent over the company’s directors, arguing they did not have an appetite for calculated risk or enough understanding of the company that should have entered the India market some time ago.

Earlier in the year, there were suggestions Nestle could be a buyer, while Chinese suitors – the obvious acquirers – would be unlikely to gain Foreign Investment Review Board approval. A thought is Swisse founder Radek Sali could buy the Barrenjoey-advised Blackmores, while private equity firm L. Catterton was one of the groups that looked at buying Blackmores rival Swisse before it sold to China’s Biostime around 2015 for $1.7bn.

In 2016, Blackmores shares sailed over $200 as vitamins were hotly sought after by Chinese consumers.

Many private equity funds are keeping a file on the company, sources say. Yet some analysts still think it is expensive, even though shares have declined.

There was talk two years ago that Driscoll’s and Paine were considering a join bid for Costa, but it did not eventuate.

Food investment specialist Paine entered into a strategic partnership with Costa as an equity partner in 2011 to support growth, and Paine representative and founding member Kevin Schwartz was appointed to the board.

Costa floated in 2015, but before that time, it is understood Driscoll’s came close to buying it.

Following the IPO, Paine held a 54 per cent interest in Costa, which fell to 12 per cent on listing with a $717m market value.

Paine sold some stock two years later at $6.55 per share.

The California-based Driscoll’s, a family-owned berry seller with an annual turnover of between $500m and $1bn, has traditionally had a capital light approach.

In recent years, it has controlled about one third of the $US6bn US berry market, developing proprietary breeds of berries and then licensing them exclusively through approved growers. Costa’s intellectual property for blueberries would appeal to Driscoll’s.

Two weeks ago, Paine Schwartz Partners raided Costa’s register, buying shares at $2.60 each to secure a 13.78 per cent stake, a 16.6 per cent premium to Costa’s closing pricing of $2.23.

Shares have languished as the company wrestles with impacts on its citrus from floods and has been unable to hit earnings forecasts with other challenges such as a glut in the market of avocados.

Costa said at the time that Paine had indicated a buyout proposal was not on the cards, but was keen to gain a board seat, subject to FIRB approval.

Shareholders appear to agree, with the stock closing on Friday at $2.60 per share, equating to a $1.2bn market value. One of the major institutional shareholders to sell down its stake was Perpetual, but it still retains 8.7 per cent in the business.