Costa: Takeover Looks Like a Done Deal

Paine Schwartz Partners’ proposed takeover of no-moat Costa CGC looks likely to proceed now that the firms have entered into a scheme implementation deed. The offer is relatively attractive on valuation grounds, representing a 22% premium to the closing price prior to the proposal and a 3% premium to our stand-alone valuation. There are still a number of hurdles, including the Foreign Investment Review Board in Australia, regulators in Morocco and China, and shareholder support. But we raise our fair value estimate to the AUD 3.20 takeover price, from AUD 3.18 previously, as we expect the deal to proceed. Paine Schwartz had indicated that this is its final offer, and the Costa board unanimously recommends it in the absence of a superior offer. As the consortium led by Paine Schwartz includes the most likely strategic partner, Driscoll’s, we think an interloping offer will be unlikely. All else equal, we would revert to our stand-alone valuation of AUD 3.10 per share if the deal fell through. A scheme booklet is being prepared, with implementation expected to occur in early calendar 2024.