Costa share price ripens 8% after accepting lower offer

Costa looks set to be taken private after accepting a takeover approach.

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The Costa Group Holdings Ltd (ASX: CGC) share price is having a strong finish to the week.

In morning trade, the horticulture company's shares are up 8% to $3.13.

a close up of two people shake hands in front of the backdrop of a setting sun in an outdoor setting.

Image source: Getty Images

Why is the Costa share price jumping?

Investors have been buying Costa's shares this morning after the company decided to accept the recently lowered takeover offer from a consortium led by Paine Schwartz Partners (PSP).

According to the release, the two parties have entered into a scheme implementation agreement for the acquisition of Costa by way of scheme of arrangement at $3.20 cash per share.

The scheme consideration values Costa's equity at approximately $1,496 million and an enterprise value of approximately $2,459 million.

In addition, the company highlights that the offer represents a premium of 43% to where the Costa share price was trading on 25 October 2022. This was the day before PSP acquired a 13.78% relevant interest in Costa. It is also an 18% premium to the closing share price on 30 June 2023 of $2.72. PSP's proposal was then made public on 4 July 2023.

Costa directors unanimously recommend the scheme

The release notes that Costa's board of directors unanimously considers the scheme to be in the best interests of shareholders. As a result, it recommends that Costa shareholders vote in favour of the scheme.

This is in the absence of a superior proposal and subject to an independent expert's report. Each Costa director intends to vote all of their shares in favour of the scheme, subject to those same qualifications.

Costa chair, 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.

And despite PSP reducing its offer from $3.50 per share to $3.20 per share, Chatfield believes shareholders are still getting a good deal. He adds:

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.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Costa Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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