July 6, 2021

By Lynda Kiernan-Stone, Global AgInvesting Media

Costa Group (CGC) and citrus grower 2PH Farms have had a working relationship for years through which Costa marketed 2PH Farms’ fruit in Australia for more than a decade, and additionally to export markets this calendar year.

This relationship has now shifted as Costa Group has entered into an agreement with a group of companies (Pressler entities) to acquire 2PH Farms and its related entities for $200 million. 

Under the terms of the transaction, CGC will pay an additional $31 million in July 2023 to purchase 2PH Farms’ “Conaghans” property where 2PH is currently planting a new citrus orchard.

“2PH has had a close relationship with Costa for over a decade through our successful domestic marketing alliance with Bindi Pressler having performed the role of 2PH Marketing Manager, of both the citrus and grape crops,” said Craig Pressler, owner, 2PH Farms. “I know and trust Costa, and I am happy that the business will be owned and run by an Australian company which is not only an industry leader, but also has a genuine commitment to continuing to build on 2PH’s reputation for the growing and export of high-quality citrus.”

Based in Queensland, with a major farming operation at Emerald and a smaller one in Dimbulah, 2PH Farms is the largest citrus grower in northern Australia. Currently the company has 1,474 hectares of planted citrus crops, and 240 planted hectares of table grapes, and will be adding another 210 hectares at its Conaghan property in Emerald by 2023.

The majority of these plantings have yet to reach a mature age of eight years, with half of the plantings being under five years of age. Based on this age profile, yields are forecasted to be approximately 30,000 tons for the 2021 calendar year, increasing to 60,000 tons by the 2025 calendar year.

With on-farm water storage capacity of 4,000 megaliters, the farms are supported by large holdings of high and medium permanent water allocations totaling 11,000 megaliters+ from Fairbairn Dam in the Nogoa Mackenzie scheme. Any additional water requirements are purchased on the temporary water market.

“2PH has a long and successful history, having been started by my parents John and Pam Pressler, uncle Geoffrey Pressler and Darryl Hess some 51 years ago,” said Pressler. “We have invested a lot of hard work and effort into becoming the successful business we are today, which is an industry leader, with an established reputation as a breeder and grower of high-quality citrus and an iconic brand both domestically and internationally.”

Let’s Talk Money

Total upfront costs of the deal, including stamp duty and transaction costs, will be approximately $219 million. To underwrite the endeavor, CGC is undertaking a pro rata accelerated renounceable entitlement offer (PAITREO) with retail rights trading to raise $190 million and existing debt facilities.

Eligible shareholders were given the opportunity to purchase 6.33 new CGC shares for every share currently held, at $3 per share – a discount of 10.3 percent to CGC’s theoretical ex rights price of $3.35 per share. The institutional segment of the offer was completed on June 28, with the retail segment opening on July 2.

2PH is expected to generate around $29 million in earnings before interest, tax, depreciation, and amortization (EBITDA) on a pro-forma basis in the current calendar year. In addition, Costa will realize a range of “strategic benefits and alignments” including 2PH Farms’ established brand presence in Asia, its proven 30-years of proprietary breeding, and its growing season which commences in mid-March, the earlier in Australia.

The deal also will expand CGC’s total citrus plantings by 60 percent to 4,513 hectares; will expand CGC’s growing regions from two to three, including Riveland, South Australia, Sunraysia, Victoria and New South Wales, and Emerald, Central Queensland; and will increase the group’s farming locations to 11. 

All 2PH sales originate from mandarins, of which half are proprietary cultivars – giving Costa the ability to commercialize royalty-free plant breeder rights and trademarked Amarette and Phoenix mandarin varieties, according to Financial News Analysis & Data – not to mention additional varieties currently being developed by 2PH’s breeding program.

Sean Hallahan, CEO, Costa Group, 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 commercialize 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.”

Hallahan continued, “Costa has been actively engaged in the acquisition of high-quality citrus assets, including our recent acquisition of KW Orchards (Sunraysia) in March 2021. 2PH is not only a high-quality asset, but it will also complement and enhance our production footprint, our variety offering and market opportunities, both export and domestic. We are delighted with this acquisition and look forward to successfully integrating 2PH into the Costa business and further growing our citrus category and its world-renowned reputation.”

– Lynda Kiernan-Stone is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Oilseed & Grain News. She can be reached at lkiernan@globalaginvesting.com.