Overview

Shareholders of Costa Group Holdings Ltd (“Costa”) are being asked to vote at a Scheme meeting, relating to the proposed acquisition of all of the issued shares in Costa by Paine Schwartz Partners, LLC (“PSP”), Driscoll’s, Inc (“Driscoll’s”) and British Columbia Investment Management Corporation (“BCI”) (together, referred to as the “Consortium”), that the Consortium and its Associates do not already own, via Chilli Buyer Pty Ltd (ACN 670 569 678) ("Bidco"), an entity to be controlled by the Consortium as at the Implementation Date.

On 22 September 2023, Costa announced it had entered into a Scheme Implementation Agreement with Bidco, an entity controlled by the Consortium as at the Implementation Date, under which Bidco has agreed to acquire all of the issued shares in Costa, that the Consortium and its Associates do not already own, at a price of $3.20 per Costa Share by way of a scheme of arrangement under Part 5.1 of the Corporations Act.

SCHEME CONSIDERATION

If the Scheme proceeds, each Costa Shareholder (other than the Excluded Shareholders) is entitled to the Scheme Consideration of $3.20 per Costa Share, less the cash amount per Costa Share of any dividend declared or determined by the Costa Board, whether fully franked or otherwise and paid by Costa to Costa Shareholders after 22 September 2023 and prior to the implementation of the Scheme (“Scheme Consideration”). The Costa Board has determined that Costa will not pay a dividend to Costa Shareholders in respect of the financial half year which ended on 2 July 2023.

The Scheme Consideration values Costa’s equity at approximately $1,496 million, and an enterprise value of approximately $2,459 million, and based on the offer of $3.20 per Costa Share, represents a price for each Costa Share that is:

  • 43% higher than the closing share price on 25 October 2022 of $2.23 per Costa Share, which represents the last closing share price prior to PSP acquiring a 13.78% Relevant Interest in Costa;
  • 23% higher than the price of $2.60 per Costa Share, the price at which PSP acquired a 13.78% Relevant Interest in Costa on 25 October 2022;
  • 18% higher than the closing share price on 30 June 2023 of $2.72 per Costa Share; and
  • 25% higher than the 3-month volume weighted average price of a Costa Share to the closing share price on 30 June 2023 of $2.57 per Costa Share.

INDEPENDENT EXPERT’S REPORT

The Independent Expert, Kroll, has concluded that the scheme is fair and reasonable and in the best interests of Costa Shareholders (other than Excluded Shareholders), in the absence of a Superior Proposal. The Independent Expert has assessed the value of a Costa Share on a 100% controlling interest basis to be in the range of $2.62 to $3.28, and the Scheme Consideration price falls within the Independent Expert’s range.

The reasons why the Independent Expert reached these conclusions are set out in the Independent Expert’s Report, a copy of which is included in Annexure A of the Scheme Booklet. The Costa Directors encourage you to read the Scheme Booklet, including the Independent Expert’s report, in its entirety.

COSTA DIRECTORS’ RECOMMENDATION

The Costa Directors consider that the Scheme is in the best interests of Costa Shareholders (other than Excluded Shareholders) and unanimously recommend that you vote in favour of the Scheme, in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Scheme is in the best interests of Costa Shareholders (other than Excluded Shareholders).
The key reasons for your Directors’ recommendation of the Scheme are set out in Section 1.1 of the Scheme Booklet. In particular:

  • The all cash consideration provides Costa Shareholders certainty in an uncertain operating environment at an attractive premium by delivering cash proceeds to Costa Shareholders.
  • Implementation of the Scheme would mean that Costa Shareholders would no longer be exposed to the current and future risks relating to the ongoing execution of Costa’s business growth plan.
  • The Independent Expert has concluded that the Scheme is in the best interests of Costa Shareholders (other than Excluded Shareholders), in the absence of a Superior Proposal.
  • No Superior Proposal has emerged as at the date of the Scheme Booklet.
  • If the Scheme is voted down and does not proceed, in response the Costa Share price may fall, perhaps materially.
  • Brokerage charges and stamp duty will not be imposed on Costa Shareholders in respect of the transfer of Costa Shares under the Scheme.

Given the above, each of your Directors who holds or controls Costa Shares intends to vote in favour of the Scheme in relation to all Costa Shares held or controlled by them, subject to the Independent Expert continuing to conclude that the Scheme is in the best interests of Costa Shareholders (other than Excluded Shareholders) and in the absence of a Superior Proposal.