Struggling fruit and vegetables grower and marketer Costa Group has gone on the front foot with a proposed near $200 million deal to lift its stake in the Australian citrus sector.
Costa announced Wednesday morning that it will seek to raise $190 million from shareholders to acquire 2PH Farms, the largest citrus grower in northern Australia.
Costa justified the proposal, saying the deal would increase the company’s citrus plantings by 60% to over 4,500 hectares and would also serve to significantly strengthen its footing in the Asian market thanks to 2PH’s well-established brand presence.
Costa says the addition of 2PH to Costa’s business will boost earnings per share by around 10%, the company said, with 2PH expected to generate $29 million in earnings in the 2021 calendar year.
“There are a number of strategic benefits and alignments that will result from what is a financially compelling acquisition, which include greater export supply to key Asian export markets, production scale, increased variety offering, including rights to commercialise varieties with Plant Breeder Rights (PBRs) in certain jurisdictions, access to a proven 30-year proprietary breeding program, expanded geographic footprint and extended season timing,” Costa CEO, Sean Hallahan said in yesterday’s statement.
“We are delighted with this acquisition and look forward to successfully integrating 2PH into the Costa business and further growing our citrus category and its world-renowned reputation.”
Costa will offer shareholders one share for every 6.33 they own at $3 share through a fully underwritten accelerated renounceable capital raise, with $219 million in total upfront funding required to acquire 2PH. The company will use existing debt facilities to cover the remaining $29 million. The issue price is a near 12% discount from Tuesday’s closing price.
Queensland-based 2PH Farms is the largest citrus grower in northern Australia with the main growing location at Emerald in Central Queensland and a smaller location at Dimbulah.
Costa has also agreed to pay an additional $31 million in July 2023 for the purchase of the Conaghans property, where a new citrus crop is currently being planted by 2PH.
In a trading update issued with the news of the fund raising and purchase, Costa says it expects the June half to be slightly ahead of the prior comparable half, largely due to a strong showing from its international operations. Both the business’ Chinese and Moroccan operations have had “very positive” performance.
The company had previously warned about the negative financial impact of avocado prices and problems in picking mushrooms in a timely fashion.
Costa expects its first half revenue to be $627 million, and its net profit after tax and industry accounting standard SGARA to be $44 million.
The business expects its performance for the rest of the year to be marginally better than 2020, subject to a number of factors including no further COVID outbreaks and yields for its various crops to be in line with expectations.
So no banner year in 2021.
