US firm Paine Schwartz Partners has slashed Costa takeover bid by $100m

US buyout firm Paine Schwartz Partners has slashed the value of its takeover bid for Australia’s leading fruit and vegetable grower and packer Costa Group by $100m.

US private equity firm Paine Schwartz Partners has sliced $100m from the value of its takeover bid for Costa, Australia’s largest fruit and vegetable grower, packer and seller, citing the company’s recent poor earnings guidance and softening market conditions.

Costa told the market on Monday that Paine Schwartz Partners had decided to reduce its non-binding indicative proposal to buy out the company for $3.50 per share to $3.20 per share, which values it at $1.5bn.

This compares to an initial bid price of $1.6bn when the US firm unveiled its proposal in July.

The slashed valuation for Costa comes after the fruit and vegetable grower revealed it would take a $30m hit in its full-year results because of poor weather conditions.

Costa also said demand for tomatoes remained soft.

“Paine Schwartz Partners has indicated that this offer is the best and final price at which the PSP-led consortium can deliver the proposed transaction,” Costa said in its ASX statement.

“The Costa board, together with its financial and legal advisers, is considering the revised non-binding offer and is continuing to engage with PSP regarding the terms and conditions of the offer to enable the Costa board to comprehensively assess whether the revised non-binding offer is in the best interest of shareholders.”

Costa shareholders have been advised by the board that they do not need to take any action at this time. “Costa will continue to keep the market informed in accordance with its continuous disclosure obligations.”

The Costa bid requires Foreign Investment Review Board approval.

Paine Schwartz Partners has slashed the value of its takeover bid for Australia’s leading fruit and vegetable grower and packer Costa Group by $100m. Picture: Richard Walker

Paine Schwartz Partners knows the Costa business intimately, having been an early investor.

The firm, then called Paine & Partners, at one point it had a 54 per cent stake before Costa was listed in 2015 at $2.25 a share, equating to a $717m market value. Paine Schwartz founder and president Kevin Schwartz had a seat on the Costa board upon its ASX float.

Shares in Costa fell 10c to $2.84 on Monday, but they are up 4.9 per cent since the start of the year.

Costa is Australia’s leading grower, packer and marketer of fresh fruit and vegetables.

It operates mainly in five core categories: berries, mushrooms, glasshouse tomatoes, citrus and avocados.

Costa’s operations include 7200 planted hectares of farmland, 40ha of glasshouse facilities and three mushroom growing facilities across Australia.

Costa also has strategic foreign interests, with majority-owned joint ventures covering six blueberry farms in Morocco and four berry farms in China, ­covering about 750 planted hectares.

In July, at a time when many undervalued and unloved agricultural stocks were being bought out, Costa revealed it had been approached with a $1.6bn takeover bid from Paine Schwartz Partners.

The bid came amid several other prominent Australian agricultural takeovers, including salmon producers Tassal and Huon Aquaculture, and United Malt, which has recommended a $1.5bn French bid.

New York-based Paine Schwartz Partners is a private equity company with plenty of cash that specialises in sustainable food chain investing, with more than $7bn in total acquisition value over its 20-year investment track record.

In November, the District of Columbia Retirement Board committed to investing $US100m ($155m) in Paine Schwartz Partners’ newly launched Food Chain Fund VI, and it looks like the private equity investor is starting to deploy those funds.

Wilsons Equity research analyst James Ferrier said the reduction in the bid price probably reflected a recent earnings downgrade from Costa and brought the bid price back to a level in line with the initial verbal engagement between Paine Schwartz Partners and Costa.

“The revised bid price implies a premium of around 45 per cent to the share price prior to Paine Schwartz Partners acquiring its 14 per cent shareholding in October 2022.

“The revised bid price implies a 29 per cent premium to our DCF valuation of $2.48 per share.

“On balance, and noting the non-binding status of the bid and Costa’s reference to ongoing engagement with Paine Schwartz Partners “regarding the terms and conditions of the offer”, we believe Paine Schwartz Partners’ revised bid price of $3.20 is likely to be supported.”