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Costa Group board accepts lower bid from US private equity firm

In a rare move, the board of Costa Group (ASX:CGC), Australia’s major fruit and vegetable supplier, has accepted a lower bid from its US private equity suitor.

The acceptance was unusual because Paine Schwartz Partners (PSP) reduced its initial proposed price from $3.50 to $3.20 per share after conducting due diligence. Typically, prices tend to rise after the bidder examines the company’s books and assets and finds reasons for a slight increase in the offer.

In other words, the suitor discovered aspects of Costa’s operations and financials that detracted from the business’s value rather than enhancing it, leading to a lower offer.

The profit warning and the anticipated half-yearly loss further discouraged the idea of a higher price, effectively ending the $3.50 offer.

Shareholders will still receive a price above $3, a level not seen before the US entered the scene earlier in the year with its non-binding $3.50 per share offer.

Although non-binding offer prices are often criticized, in this case, it prevented the US company from overpaying for Costa.

Costa officially confirmed on Friday (although reports of its acceptance had circulated on Thursday) that its board unanimously deemed the revised $3.20 per share offer to be in the best interests of shareholders. The lower price had been disclosed earlier in the week.

The PSP-led consortium already owns 19.62% of Costa’s equity and is offering cash for the remaining shares. On Friday, Costa shares rose over 6.4% to $3.10 in ASX trading.

The price reduction (and the board’s acceptance) was likely influenced by Costa’s weak half-year profit report from late last month, along with a warning that earnings would decline in the second half of the year and a forecasted $30 million impact from weather-related issues.

The takeover is expected to be completed in the first quarter of 2024.

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