Costa (ASX:CGC) launches $190m capital raising for major acquisition

The Costa Group Holdings Ltd (ASX: CGC) share price won’t be going anywhere on Wednesday.

This morning the horticulture company requested a trading halt so that it could raise funds for an acquisition.

What did Costa announce?

Costa has announced its entry into binding agreements with a group of companies to acquire the business and assets of 2PH Farms.

Queensland-based 2PH Farms is the largest citrus grower in northern Australia. It has farming operations in Central Queensland, with a main growing location at Emerald and a smaller location at Dimbulah.

According to the release, the parties have agreed an upfront consideration of approximately $200 million in cash. 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.

The release explains that 2PH is expected to generate ~$29 million in EBITDA-S in calendar year 2021 on a pro forma basis. This will make it around 10% earnings per share accretive on a pro forma basis in 2021, excluding future plantings at Conaghans and potential synergy benefits.

Furthermore, management notes that its relatively young citrus orchards are still in growth phase, with yield forecast to more than double by orchard maturity.

Costa Group’s CEO, Sean Hallahan, commented: “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.”

Capital raising

Costa is aiming to raise $190 million via a fully underwritten pro rata accelerated renounceable entitlement offer, with retail rights trading.

Under the entitlement offer, eligible shareholders are invited to subscribe for 1 new share for every 6.33 existing shares held, at a price of $3.00 per new share. This represents an 11.8% discount to the Costa share price at the close of play on Tuesday.

Trading update

In addition to the above, Costa has provided the market with a trading update.

It advised that its first half calendar year 2021 performance is expected to be marginally ahead of the prior comparable period. This is being driven by a strong performance from the international segment, offset by a mixed performance from the produce segment.

Based on unaudited management estimates, it is expecting first half revenue of $627 million, EBITDA-S of $124 million, and NPAT-S of $44 million.

It is expecting this trend to continue in the second half, leading to a full year results marginally ahead of the prior corresponding period. Though, this does not take into account the impacts of the acquisition and the equity raising.

The post Costa (ASX:CGC) launches $190m capital raising for major acquisition appeared first on The Motley Fool Australia.

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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 owns shares of and has recommended COSTA GRP FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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