Paine Schwartz bids for Costa Group

Costa Group remains in the cross hairs of private equity. Picture: iStock

Fruit and vegetable grower Costa Group is understood to have fielded a $1.2bn-plus buyout proposal from Paine Schwartz Partners, after the former owner of the business has been creeping up its register.

It comes after Paine Schwartz Partners lifted its stake in Costa Group in March on the back of a raid on the register in October last year, amassing a stake of just over 13 per cent.

A substantial shareholder notice to the market revealed that Paine Schwartz held 14.84 per cent of the company, at March, up from 13.78 per cent.

When the fund bought into Costa last year, it said it had aspirations to get to 15 per cent.

But now a buyout proposal is understood to have landed, with the company yet to recommend an offer.

Shares on Friday closed at $2.72 and on Monday at $2.96, taking its market value to $1.26bn.

Shares in March were trading at below $2.30.

In October, Paine Schwartz was trying to buy a stake at a price of up to $2.60 a share through direct and financial interests via investment bank Citi.

The price at the time was a 16.6 per cent premium to Costa’s closing pricing of $2.23.

The New York-based company, previously called Paine & Partners, said at the time that it had no current intention to bid for Costa, which has counted UBS as its long-time adviser, but was keen to gain a board seat, subject to Foreign Investment Review Board approval.

The expectation around the market since then has changed.

DataRoom reported in May that Costa was back in focus for a takeover, and that Paine may partner with Driscoll’s for a deal, with the pair considering a buyout together in 2020.

Paine & Partners owned Costa with family founders before Costa was listed in 2015 at $2.25 a share, equating to a $717m market value.

Costa’s share price had been under severe pressure after flooding affected its citrus crops, it faced pricing pressure from a glut of avocados in the market and suffered from higher labour costs, but cost pressures have since eased and international earnings are increasing, the company told the market in May.

Costa is Australia’s largest grower, packer and marketer of fresh fruit and vegetables, supplying produce to supermarket chains as well as independent grocers and a range of food industry stakeholders.

The business also exports to Asia, North America and Europe, growing produce including berries, mushrooms, tomatoes, citrus, table grapes, bananas and avocados.

The bid will be welcomely received by deal makers in the market hoping for a pick up in activity amid a major lull.

Investment bankers on Monday were keen to talk up the result of the initial public offering debut of Redox.

Despite the stock closing down 5 per cent on its first day of trade to $2.42, it was not the disastrous foray that Chrysos Corp made a year ago where it finished the first day of trade down more than 35 per cent and shut the IPO market.

Only about $10m of Redox shares changed hands in a quiet market, but some fund managers are sceptical that the deal demonstrates the market is open for business for other floats by December.

Yet bankers eager to see more activity are hopeful the result was good enough to urge other groups to hit the boards.

Not helping the Redox result was that only a 30 per cent holding was sold down, creating a limited free float and inhibiting liquidity.

The Wall Street Journal reported that two private equity floats in the United States this week showed that the signs the market had opened, at least a crack.