BCI And Partners Acquire Australia's Costa Group in a Take-Private Transaction
One of Australia’s largest fruit and vegetable producers, Costa Group Holdings (ASX: CGC), has announced today it is accepting a $1.49 billion takeover offer from a consortium led by private US equity firm Paine Schwartz Partners (PSP).
The approved $3.20 a share deal comes after months of negotiations with the suitor, which slashed its initial $1.6 billion offer after Costa revealed underlying profit for the full year would take a $30 million hit due to unfavourable growing conditions.
If the deal overcomes regulatory hurdles, it will see the consortium snap up the remaining 85.16% stake it does not already own. Led by PSP, the consortium also comprises entities controlled by the world's largest berry company Driscoll's Inc and the British Columbia Investment Management Corporation (BCI).
The Costa board has unanimously recommended that shareholders vote in favour of the scheme, in the absence of a superior proposal and subject to an independent expert review.
“The board is committed at all times to acting in the best interests of shareholders and with this firmly in mind, carefully considered a range of factors in arriving at its recommendation,” Costa Group chairman Neil Chatfield said.
“This included a number of different valuation scenarios, potential risks relating to the future execution of Costa’s business growth plan, and the price at which Costa shares could trade over the medium to longer term if it continues as an independent listed company.
“Accordingly, the Costa board has unanimously recommended that Costa shareholders vote in favour of the scheme, subject to the various customary conditions.”
Founded in 1937, Costa Group is a large grower of berries, citrus fruit, mushrooms, avocadoes and tomatoes. It currently operates more than 7,200 hectares of farmland in Australia, in addition to operating facilities in Morocco and China. The company also exports 10 per cent of its produce to North America, South America, Europe and Asia.
For the deal to go ahead, it will require approval from multiple regulators, including the Chinese State Administration for Market Regulation, the Moroccan Competition Council, and the European Commission.
PSP showed its intentions for a takeover of Costa Group in May this year when it issued an unsolicited, confidential, non-binding indicative proposal to acquire all of the shares in Costa it didn’t already own. PSP had previously snared a 13.78 per cent stake in Costa on 25 October 2022.
However, the US investor has been involved in the Costa Group journey for much longer than that, having been a majority owner of the company prior to its 2015 initial public offering (IPO) on the ASX with its first equity stake acquired in 2011, back when its name was Paine + Partners.
Subject to conditions being met, implementation of PSP’s latest deal with Costa Group is expected to occur in the first quarter of 2024.
Last week, BCI issued a press release stating that Costa entered into a scheme implementation agreement with a consortium led by Paine Schwartz Partners:
Costa Group Holdings Limited (ASX: CGC) (“Costa” or the “Company”) today announces that it has entered into a Scheme Implementation Agreement (“SIA”) with a consortium led by Paine Schwartz Partners, LLC (“PSP”) (“Consortium”) for the acquisition of all of the issued shares in Costa the Consortium does not already own, by way of scheme of arrangement (“Scheme”), representing a value of $3.20 cash per share1.
The PSP-led consortium is comprised of entities controlled by PSP, Driscoll’s Inc and British Columbia Investment Management Corporation. Entities affiliated with PSP and Driscoll’s Inc hold in aggregate, approximately 19.62% of the Costa shares currently on issue.
- Under the terms of the Scheme, Costa shareholders will be entitled to receive cash consideration of $3.20 per share1 (“Scheme Consideration”).
- The Board of Costa unanimously considers the Scheme to be in the best interests of Costa Shareholders and recommends shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to an independent expert concluding and continuing to
conclude that the Scheme is in the best interests of Costa shareholders.
- The Scheme is subject to certain conditions, including approval by Costa shareholders at a Scheme Meeting and certain regulatory approvals.
- Subject to satisfaction of the conditions, implementation of the Scheme is expected to occur in the first quarter of 2024.
Details of the Scheme Consideration
If the Scheme is implemented, Costa shareholders will be entitled to receive Scheme Consideration of $3.20 per share1.
The Scheme Consideration values Costa’s equity at approximately $1,496 million2, and an enterprise value of approximately $2,459 million3, and represents premia of:
- 43% to the closing share price on 25 October 2022 of $2.23, which represents the last close prior to PSP acquiring a 13.78% relevant interest in Costa;
- 23% to the price of $2.60, the price at which PSP acquired a 13.78% relevant interest in Costa on 25 October 2022;
- 18% to the closing share price on 30 June 20234 of $2.72; and
- 25% to the 3-month VWAP5 to the closing share price on 30 June 2023 of $2.57.
Costa directors unanimously recommend the Scheme
Costa’s Board of Directors unanimously considers the Scheme to be in the best interests of Costa Shareholders and recommends that Costa shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to an independent expert concluding (and continuing to conclude) that the Scheme is in the best interests of Costa shareholders. Each Costa Director intends to vote all of the Costa shares that he or she holds or controls in favour of the Scheme, subject to those same qualifications.
Costa Chairman, Neil Chatfield, said:
“The Board is committed at all times to acting in the best interests of shareholders and with this firmly in mind, carefully considered a range of factors in arriving at its recommendation. This included a number of different valuation scenarios, potential risks relating to the future execution of Costa’s business growth plan, and the price at which Costa shares could trade over the medium to longer term if it continues as an independent listed company.
Accordingly, the Costa Board has unanimously recommended that Costa shareholders vote in favour of the Scheme, subject to the various customary conditions.
The Scheme Consideration represents a premium of 43% to the closing share price on 25 October 2022 of $2.23, being the last close prior to PSP acquiring a 13.78% interest in Costa. While the Costa Board has confidence in the long term fundamentals of the company, the Scheme provides certainty for shareholders in an uncertain operating environment by delivering cash proceeds to shareholders at an attractive premium.”
Details of the Scheme Implementation Agreement
The implementation of the Scheme is subject to various customary conditions. A copy of the SIA, which sets out the terms and conditions of the Scheme and associated matters, is attached to this announcement. Capitalised terms used in this section below have the meaning given to those terms in the SIA.
In summary, conditions for implementation of the Scheme include:
- the independent expert issuing an independent expert’s report which concludes that the Scheme is in the best interests of Costa shareholders (and not changing or withdrawing that conclusion);
- approval of the Foreign Investment Review Board for the Consortium acquiring all of the shares in Costa, noting PSP have already received approval to acquire up to 100% of the shares in Costa;
- approval from the Chinese State Administration for Market Regulation, the Moroccan Competition Council, and the European Commission;
- approval of Costa shareholders by the requisite majorities and the Federal Court of Australia;
- no Material Adverse Effect to Costa including a reduction in consolidated net assets or consolidated annual EBITDA-S beyond specified thresholds;
- no Costa Prescribed Events; and
- certain other customary conditions.
The Scheme is not subject to any financing condition.
The SIA contains limited termination rights including that either party may terminate in the event of an unremedied material breach by the other party.
Under the SIA, Costa will be subject to customary exclusivity obligations, including no shop, no talk and no due diligence obligations (the latter two subject to a customary fiduciary exception), notification obligations and a matching right. A break fee of $14.9 million will be payable by Costa to the Consortium and a reverse break fee of $14.9 million will be payable by the Consortium to Costa, in each case, in certain customary circumstances.
Indicative timetable and next steps
Costa shareholders do not need to take any action at this point in time.
A Scheme Booklet containing information relating to the proposed acquisition under the Scheme, reasons for the Costa directors’ recommendation, an independent expert’s report, and details of the Scheme meeting will be prepared and provided to the Australian Securities and Investments
Commission for review, and subsequently sent to Costa shareholders.
Shareholders will then have the opportunity to vote on the Scheme at a shareholder meeting. Subject to shareholder approval being obtained by the requisite majorities and the other conditions of the Scheme being satisfied, implementation of the Scheme is expected to occur in the first
quarter of 2024.
Costa has appointed UBS Securities Australia as financial adviser and King & Wood Mallesons as legal adviser.
This release is authorised by the Costa Group Holdings Limited Board.
About Costa (ASX:CGC) – Costa is Australia’s leading grower, packer and marketer of fresh fruit & vegetables and operates principally in five core categories: berries, mushrooms, glasshouse tomatoes, citrus and avocados. Operations include approximately +7,200 planted hectares of farmland, 40 hectares 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 approximately 750 planted hectares.
For further information contact: Michael Toby – Corporate Affairs Manager, Costa | T: +613 8363 9071
1 Less any permitted dividend of up to $0.04 per Costa share declared and paid to Costa shareholders prior to the implementation of the Scheme
2 Calculated based on 464,709,793 fully paid ordinary shares and 2,635,206 options or rights to subscribe for Costa shares currently on issue
3 Calculated based on 2 July 2023 net debt of $350.1 million, lease liabilities of $582.9 million, equity accounted investments of $34.8 million and non-controlling interests of $65.5 million
4 Being the closing price on the day immediately prior to market speculation around a possible change of control proposal
5 Volume weighted average price
On LinkedIn, BCI states the following on this deal:
BCI is pleased to announce that we have entered into a definitive agreement to acquire Costa in a take-private transaction, alongside Paine Schwartz Partners and Driscoll's. Costa is an Australian agribusiness integrated across farming, packing, and marketing operations in seven high-value crop categories: citrus, berries, mushrooms, tomatoes, avocados, table grapes, and bananas. Costa is Australia’s largest fresh produce supplier to major Australian food retailers. “Our investment represents an attractive opportunity for BCI to gain exposure to the Australian agriculture industry, further diversifying our portfolio,” said Lincoln Webb, Executive Vice President & Global Head, Infrastructure & Renewable Resources, BCI. “As a market leader, Costa’s protected cropping operations and diverse geographic footprint reduce the potential economic impacts of volatile weather events and climate change.”
If this deal gets approved by shareholders and gets regulatory approval, BCI and its partners will own Australia’s largest fresh produce supplier to major Australian food retailers.
Lincoln Webb, Executive Vice President & Global
Head, Infrastructure & Renewable Resources, at BCI explains the rationale: “Our investment represents an attractive opportunity for BCI to gain
exposure to the Australian agriculture industry, further diversifying
our portfolio. As a market
leader, Costa’s protected cropping operations and diverse geographic
footprint reduce the potential economic impacts of volatile weather
events and climate change.”
This is all part of an asset allocation decision to diversify into agriculture as rates stay higher for longer. It also fits well into BCI's sustainable investment approach.
PSP Investments remains the leader in agricultural investments followed by OTPP and then BCI and CDPQ which are ramping up their investments in the sector.
In related news, BCI issued another press release stating Centerbridge Partners and Wells Fargo entered a strategic relationship focused on direct lending to middle-market companies:
NEW YORK and SAN FRANCISCO – Centerbridge Partners (Centerbridge) and Wells Fargo & Company (NYSE: WFC) announced they are entering into a strategic relationship focused on direct lending to non-sponsor North American middle market companies. To meet the alternative credit needs of this segment, Centerbridge intends to launch Overland Advisors to manage a newly formed business development company that will be primarily focused on making senior secured loans. Overland represents a transformative new business model for direct lending to middle-market companies, diversifying the market of clients served by private credit and direct lending.
The Centerbridge and Wells Fargo strategic relationship includes differentiated origination sourcing from Wells Fargo’s extensive middle market customer base, and an equity investment from Wells Fargo. In addition to expanding financing access to the non-sponsor segment, Overland will pursue other transactions, including traditional sponsor-backed direct lending opportunities.
Overland Advisors is targeting a minimum of $5 billion in investible capital, including $2.5 billion in equity commitments for this strategy. Anchor investors, including wholly owned subsidiaries of the Abu Dhabi Investment Authority (ADIA) and British Columbia Investment Management Corporation (BCI), have committed to provide nearly $2 billion in initial equity commitments.
“Overland represents a new paradigm in direct lending, bringing a relationship approach to direct lending and offering a much-needed capital solution in the large but underpenetrated non-sponsor U.S. middle market,” said Jeff Aronson, Co-Founder and Managing Principal of Centerbridge Partners. “We believe Overland draws on the unique and complementary capabilities of both Centerbridge’s leading private credit underwriting capabilities and Wells Fargo’s nationwide sourcing and origination network to offer an attractive new proposition for borrowers in the private lending and direct credit space at a particularly compelling time.”
“As a leader in U.S. middle market and asset-based lending, we are continually focused on finding ways to best serve our clients, and Overland can offer them options for alternative capital structures that can be used to pursue a broader set of growth and value creation initiatives across a variety of market conditions,” said Charlie Scharf, CEO of Wells Fargo. “Working with Centerbridge under our sourcing relationship will help us elevate our support of middle market clients.”
Hamad Shahwan AlDhaheri, Executive Director of the Private Equities Department at ADIA, commented, “Overland represents a highly differentiated and scalable approach to direct lending in the U.S. middle market. We are excited about our anchor investment in this unique platform.”
Daniel Garant, Executive Vice President & Global Head, Public Markets, BCI, said, “Direct Lending provides an important alternative financing source for middle market businesses. We believe Overland takes that to the next level by broadening and diversifying the types of businesses served, and we are pleased to be making this meaningful long-term investment.”
The sourcing relationship between Overland Advisors and Wells Fargo will provide an innovative, relationship-driven approach to direct lending that meets the capital needs of Wells Fargo clients and other non-sponsor owned middle-market businesses by providing important financing capacity and access to capital for family-owned and other privately owned businesses in North America that have limited connectivity to private credit. Harnessing Centerbridge and Wells Fargo’s strengths and scale and building on their respective track records and deep relationships, Overland will be well-positioned to offer a differentiated client experience for borrowers.
Overland expects to leverage Centerbridge’s recognized leadership as a private and alternative credit investor, with a seasoned investment team that has decades of experience creating innovative solutions and underwriting credit investments. It also expects to benefit from Wells Fargo’s long-term relationships, extensive client base and leading position in U.S. middle market and asset-based lending, supported by a nationwide network of relationship managers in 49 out of 50 of the largest markets across the country.
Overland Advisors will be controlled by Centerbridge Partners, and Wells Fargo will be a minority investor.
Centerbridge Partners, L.P. is a private investment management firm employing a flexible approach across investment disciplines — Private Equity, Private Credit and Real Estate — in an effort to develop the most attractive opportunities for its investors. The firm was founded in 2005 and as of June 30, 2023, has approximately $36 billion in capital under management with offices in New York and London. Centerbridge is dedicated to partnering with world-class management teams across targeted industry sectors and geographies.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a leading financial services company that has approximately $1.9 trillion in assets, proudly serves one in three U.S. households and more than 10% of small businesses in the U.S., and is a leading middle market banking provider in the U.S. We provide a diversified set of banking, investment and mortgage products and services, as well as consumer and commercial finance, through our four reportable operating segments: Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth & Investment Management. Wells Fargo ranked No. 47 on Fortune’s 2023 rankings of America’s largest corporations. In the communities we serve, the company focuses its social impact on building a sustainable, inclusive future for all by supporting housing affordability, small business growth, financial health, and a low carbon economy.
News, insights, and perspectives from Wells Fargo are also available at Wells Fargo Stories.
About Abu Dhabi Investment Authority (ADIA)
Established in 1976, ADIA is a globally-diversified investment institution that prudently invests funds on behalf of the Government of Abu Dhabi through a strategy focused on long-term value creation.
British Columbia Investment Management Corporation (BCI) is amongst the largest institutional investors in Canada with $233.0 billion in gross assets under management, as of March 31,2023. Based in Victoria, British Columbia, with offices in Vancouver, New York City, and London, U.K., BCI manages a portfolio of diversified public and private market investments on behalf of its 32 British Columbia public sector clients. With a global outlook, BCI integrates ESG factors in all investment decisions and activities that convert savings into productive capital to meet clients’ risk and return requirements over time. Founded in 1999, BCI is a statutory corporation created by the Public Sector Pension Plans Act.
With rates high and big banks reducing credit in the economy, direct lending is a booming business which makes up almost half of all private credit assets.
Daniel Garant, Executive Vice President & Global Head, Public Markets, BCI, explains why BCI invested in this deal: “Direct Lending provides an important alternative financing source for middle market businesses. We believe Overland takes that to the next level by broadening and diversifying the types of businesses served, and we are pleased to be making this meaningful long-term investment.”
Lastly, BCI recently announced the appointment of Jeremy Trickett as Senior Vice President, Legal Affairs & Chief Legal Officer:
Jeremy will lead BCI’s legal and compliance departments with enterprise-wide responsibility for supporting transactional, investment, and operational activities to ensure the investment needs of our clients are met.
Jeremy brings extensive professional leadership and international private practice experience. Before joining BCI, Jeremy served as Senior Vice President & Chief Governance Officer at Great-West Lifeco Inc. He holds an Honours BA, JD, and an LLM, and is a member of the law societies of Ontario, Alberta, Manitoba, and England and Wales.
“We are delighted to have Jeremy join BCI and oversee our legal and compliance teams. Jeremy has a proven track record of leading high-performance teams, and his international experience will be invaluable as we continue to grow our footprint as an active global investor,” said Shauna Lukaitis, Chief Operating Officer.
“I am excited to join such a prominent global asset manager and look forward to contributing to BCI’s continued success in investing globally on behalf of British Columbia’s public sector clients,” said Jeremy. “It is a privilege to join at this pivotal time alongside such a talented team,” he added.