- Costa Group (CGC) enters a two-day trading halt as it announces the $200 million buyout of major citrus grower 2PH Farms
- The fruit and veg giant launches a $190 million entitlement offer to help fund the purchase, with shares under the offer priced at $3 each
- Costa CEO Sean Hallahan says there are several “strategic benefits and alignments” to come from the 2PH buy
- 2PH is expected to generate $29 million in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for Costa in 2021
- Costa Group shares last traded at $3.40 each on Tuesday, June 22
Fruit and veg giant Costa Group (CGC) has called a trading halt until after the weekend as it gears up to purchase citrus specialist 2PH Farms.
Costa will pay more than $200 million for full control of 2PH and its related entities. The company expects to fund the buy through a $190 million capital raise, announced today.
On top of this, Costa said it would pay an additional $31 million in July 2023 to buy the “Conaghans” property, where 2PH is busy planting a new citrus crop.
A growing relationship
The two companies have had a business relationship for some time, with Costa having marketed 2PH’s citrus in Australia for more than a decade.
2PH, touted by Costa as the largest citrus grower in northern Australia, has its main growing location in Emerald, Queensland, with a smaller location in Dimbulah.
Costa said the 2PH annual yield was forecast to be around 30,000 tonnes for the 2021 calendar year. However, the majority of 2PH’s tree profile is young — still yet to reach its eight-year maturity.
As such, the company’s yield is predicted to reach around 60,000 tonnes by 2025.
The 2PH buy is expected to generate roughly $29 million in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for Costa on a Pro-forma basis over the 2021 calendar year.
Further to this, there are several “strategic benefits and alignments” to come from today’s deal, according to Costa CEO Sean Hallahan.
Why the buy?
With an established brand presence in Asia, 2PH is expected to give Costa greater export supply to some key Asian markets.
Further, Costa’s total citrus plantings will increase by about 60 per cent following the 2PH buyout. This will help drive an extended variety of products and early season timing for Costa, with 2PH’s citrus season beginning in mid-March — the earliest citrus season in Australia, according to Costa.
On top of all this, Costa now expects its citrus business category to contribute around 35 per cent of total revenue, up from 30 per cent.
“2PH is not only a high-quality asset, but it will also complement and enhance our production footprint, our variety offering and market opportunities, both export and domestic,” Mr Hallahan said.
“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.”
The capital raise
To help fund the 2PH buy, Costa Group is tapping investors for $190 million through an entitlement offer.
Under the offer, eligible shareholders can buy 6.33 new CGC shares for every one share already held at $3 each. This represents a 10.3 per cent discount to CGC’s theoretical ex rights price of $3.35.
The offer will be split into an institutional and a retail segment, with Costa planning to complete the institutional segment before the end of the trading halt on Monday, June 28. The retail portion of the offer will open on Friday, July 2.
All-up, Costa will pay $219 upfront under the 2PH deal when including stamp duty and transaction costs.
Costa said it planned to complete the full 2PH purchase by late-July 2021.
Costa’s 2021 outlook
Alongside the news of the 2PH purchase, Costa said it expected the first half of the 2021 calendar year to marginally outperform the same time period last year.
While the company said its product segment had been mixed over the past six months, with berry prices favourable but mushroom volumes below expectation, Costa’s international segment was strong.
As such, the company is expecting to table $627 million in revenue, $124 million in EBITDA, and $44 million in net profit after tax for the first half of 2021.
Costa Group shares last traded at $3.40 each on Tuesday, June 22.