News

New York private equity firm Paine Schwartz Partners is closing in on a $1.62 billion acquisition of Costa Group that will be closely scrutinised by Macquarie as a major landlord to the citrus, berry and avocado producer.

Costa, Australia’s biggest horticultural company, confirmed on Tuesday it received a takeover offer from Paine pitched at $3.50 a share at the end of May, after the approach was revealed in The Australian Financial Review’s Street Talk column.

The Costa share price jumped almost 12 per cent to $3.31.

However, the grower, packer and marketer of fresh fruit and vegetables hosed down speculation a deal would be finalised within days. Costa said talks with Paine were expected to continue through most of July on a potential deal that leaves the door open for shareholders to pocket any interim dividend up to 4¢-a-share declared for the six-month period ended on July 2.

Paine, which floated Costa in 2015, acquired a near 14 per cent stake in Costa last October at a price of $2.60 a share, and started talks in April about a takeover offer in the range of $3.20 to $3.30 a share.

It followed up with a confidential and non-binding proposal at $3.50 a share on May 31.

Costa said Paine confirmed its intention to push ahead on Tuesday on the back of four weeks of due diligence. The offer tabled represents a 34.6 per cent premium on the price Paine paid for its stake back in October.

Macquarie, which in 2021 prevailed in a bidding war for Costa’s fruit orchard landlord Vitalharvest, is understood to be keeping a close eye on any change of control.

Macquarie Infrastructure and Real Assets owns four berry farms in NSW and Tasmania and three in South Australia’s Riverland leased to Costa. MIRA is also a landlord for Costa’s avocado orchards.

Wilsons Advisory head of research James Ferrier speculated that a focus of Paine’s interest might be around Costa’s berry varieties and IP in that area given the mix of agricultural technology businesses already in its portfolio.

“The berry IP is of course it’s a very capital light asset whereas the domestic farms, particularly the more industrialised production categories like tomatoes and mushrooms are very capital intensive,” he said.

Mr Ferrier said it was possible that Paine would look to bring in a partner seeking an annuity stream from Costa assets.

Morgans analyst Belinda Moore said Paine’s indicative offer was a great outcome for Costa shareholders given the “execution risk involved in delivering its growth projects and targeted returns over the next few years”, in a note to clients.

Morgans suggested the Costa earnings profile was too volatile for the listed market.

Wilsons judged the offer was at a hefty premium to the Costa share price before Paine made its presence felt in re-joining the register in October. However, Wilsons noted that Costa’s investments in boosting production over the past five years had not yet been reflected in earnings growth, and on that basis it could be argued the Paine bid undervalued Costa.

Mr Ferrier said Costa was in line for a big uplift in earnings based on consensus forecasts for the full year. “That’s primarily based on recovery in citrus yields and citrus quality that were impacted last year essentially by weather and weather related disease,” he said.

Paine is understood to have locked in approval from the Foreign Investment Review Board but may need to restart that process if co-investors become involved. The Costa board granted Paine an eight-week period of non-exclusive due diligence from June 6.

The deal comes amid a backdrop of rising supply and strong export demand which will drive record horticultural production value despite a slight easing of prices, according to the Australian agriculture mid-year outlook released on Tuesday by Bendigo and Adelaide Bank-owned Rural Bank.

Rural Bank tipped above-average fruit and vegetable production over the next six months and said relatively steady domestic consumption and high production costs would keep fresh fruit and vegetable prices above longer-term averages.

In a trading update in May that coincided with the company’s annual meeting, Costa said a return to warmer temperatures and lower rainfall was a positive for its operations, which revolve around growing citrus, berries, avocado, tomatoes, table grapes and mushrooms, after three consecutive La Nina weather events.

Costa aims to expand its footprint in China to 700 planted hectares by 2026.

The Paine bid for Costa comes with United Malt, another listed agriculture stock, set to disappear from the ASX via a $1.5 billion buyout offer from Malteries Soufflet.

The Costa family, who founded the business in 1959, allowed Paine – then based in Chicago and known as Paine & Partners – on board as a private equity partner in 2011.

The move paved the way for growth of the business and the 2015 float of the company.

Online pet supplies company Pet Circle has secured $75 million in funding from its existing top-tier investor, Prysm Capital, coming after strong retail sales of $308.8 million last year.

The funding will help support Pet Circle’s growth as it continues to invest in expansion to potentially secure a larger share of the pet supplies market – worth $12 billion annually.

“Pet Circle continues to be an innovator in the pet industry, with an unwavering commitment to building an exceptional digital-first customer experience,” said Matt Roberts, co-founder and partner of Prysm Capital. 

“Under the leadership of [co-founder] Mike Frizell, they’ve emerged as a major player in a category that continues to see strong tailwinds globally.”

The $75 million investment will also allow the firm to maintain its unicorn value, which it acquired in its Series C round in December 2021.  With its expanded offering – which now includes more than 13,500 pet speciality products and insurance – the company aims to secure a larger share of the pet category.

“With a healthy cash balance and continued growth in our core consumables categories, particularly premium food, the outlook for Pet Circle is one of continued and rapid growth,” concluded Frizell. 

“This investment boost is yet more confidence from our investors of the opportunity ahead for Pet Circle as we build an exceptional customer experience.”

The investment in Pet Circle is subject to receipt of customary regulatory approvals.

Global beverage company Lion has acquired Australian craft spirit brand Four Pillars in a landmark deal.

The acquisition includes the ownership of the Healesville distillery and all domestic and international sales and marketing of the brand.

Lion CEO Sam Fischer said Lion is “thrilled” to add Four Pillars to its portfolio.

“Alongside continued investment behind our core beer business, we see premium spirits as a real opportunity for future growth.”

Four Pillars co-founders and chief distiller, Cameron Mackenzie and brand and strategy director, Matt Jones will remain in the business in their current capacities.

Mackenzie said Lion has played an “integral part” in expanding the brand across Australia and New Zealand.

“This is a great day for our brand, the business, our home in Healesville, our investors, families and staff. It does feel like it’s been a whirlwind 10 years, and this feels like the absolute right next step.”

Four Pillars’ co-founder and trade director, Stuart Gregor, will take an extended sabbatical but will remain with the business in the short term.

Four Pillars joins Lion’s owned Vanguard Luxury Brands distribution business and together will operate as a stand-alone spirits division within Lion Australia called Four Corners Global Spirits.

Embattled Bubs Australia has dumped its previous trade and distribution partners in China and will attempt to gain Beijing’s regulatory tick for its Melbourne manufacturing site as it seeks to assure shareholders it has the winning formula ahead of a motion to spill the board.

Bubs Australia announced the plans on Thursday as part of its strategic review, which newly installed chairperson Katrina Rathie launched after deposing founder Kristy Carr and former executive chairman Dennis Lin.

“Clearly our China strategy has failed,” said independent non-executive director Reg Weine in an online presentation of the strategic review to shareholders on Thursday morning.

The company did not have the right go-to-market plan, distribution partners, or the right pricing architecture, he said. “Our daigou business was overly reliant on rebates and discounts.”

Bubs Australia said it would appoint new distributors and trade partners and review its joint-venture agreements in China. In a statement to this masthead, a Bubs spokesperson said it had secured new trade partners and two new Australian daigou distributors but did not name them. Daigous are shoppers who buy and export premium goods to customers in China for a profit.

“We expect to onboard more partners as things settle down and we accelerate the reset,” the spokesperson said.

The company’s management also confirmed on Thursday that it would work to secure “state administration for market regulation” registration in China for its Deloraine manufacturing facility in Melbourne. Gaining this regulatory approval would give Bubs direct access to China’s general retail market, where the majority of infant formula is sold.

Bubs has abandoned plans under previous management for a joint venture to manufacture its products in China. The Heilongjiang joint venture is a key point of contention in a legal dispute between Carr and Lin, and the company. The company claims the then-CEO and chairman ignored instructions not to visit the factory site or open a bank account in relation it.

Responding to a shareholder question about Alibaba’s role in Bubs’ future distribution strategy, Weine said the business was very fortunate to have the support of “one of the most sophisticated e-commerce players in the world”.

“I think as a business we need to leverage that relationship much harder to our advantage,” he said. “But that is just one channel and one go-to-market open to us.”

Meanwhile, Weine described the US market as its “growth engine” and said the strategy was “going better than expected”. US sales are expected to double in the 2024 financial year.

The strategy for the US market that the board outlined for investors was similar to that outlined by ousted chief executive Kristy Carr and former executive chairman Dennis Lin, with the company highlighting that the US market was performing “better than expected”.

Other changes outlined in the review include a focus on streamlining food products to higher margins, consideration of co-manufacturing and private label products, and drumming up Bubs’ position as a “clear market leader” in the goat segment within infant formula.

“You can expect us to now focus on our competitive advantage and double down on all things goat,” Weine said.

The company is hoping the strategic review will convince shareholders to vote against spilling the current board at the coming extraordinary general meeting (EGM), initiated by a group of dissident investors led by Carr and Lin and backed by Chemist Warehouse chair Jack Gance.

Bubs Australia is operating without a chief executive officer since terminating Carr from her position. Weine said the board would announce a chief executive “shortly after the EGM”.

“The significant fall in shareholder value is ultimately why we are here, why the significant intervention was necessary, and why the governance at Bubs had to change,” said Weine.

“I think it’s fair to say there was a complete lack of focus and accountability.”

Bubs shares declined in morning trading but have since recovered, and were up more than 2 per cent in late afternoon trading.

Shareholders in the company will have to vote on July 27 on whether to keep Bubs’ board of directors, made up of Rathie, Weine, Jackie Lin and Paul Jensen, or to replace them with a new team including Peter Nathan as CEO, former Elders deputy chair James Jackson as chairman, and manufacturing expert Rupert Soar as a non-executive director.

In a statement by the Save Our Bubs dissident investor group, Jackson and Nathan said the strategic review was “light on detail” and that most elements were unchanged to the one implemented by Carr and Lin.

“There is sadly so little to show after three months of review and the engagement of expensive external advisors,” they said.

“There was no detail of the prospective business partners and distributors in its so-called China strategy, which looked remarkably similar to what was being pursued previously ...

“There was no strategy to capture direct trade [daigou], which accounts for 80 per cent of [instant milk formula] sales in China other than acknowledging getting [state administration for market regulation] approval for the Deloraine facility will be a long and costly process.”

Nathan and Jackson renewed their attack on the current board’s skill set and sought to cast doubt on their ability to secure regulatory approval from Beijing.

“Sadly the board lacks any experience, track record and insight to bring to bear in securing this ambition which is pivotal to the plan that was presented.”

McPherson’s has appointed Brett Charlton as its new MD and CEO, effective August 1. 

Charlton joins McPherson’s after serving as a strategic growth counsel to companies in the consumer products industry. He formerly served as chief skincare officer for Laser Clinics Australia and as MD for Sanofi Consumer Healthcare and Tip Top Ice Cream. 

Charlton has 25 years of marketing and branding experience, as well as manufacturing and supply chain knowledge, and a customer, consumer, digital, and data-first mindset. 

“Brett’s career highlights include significant turnaround experience, where he led both top and bottom-line growth in manufacturing and consumer-based organisations,” said McPherson’s chairman Ari Mervis. 

“His leadership acumen and proven track record for driving performance will greatly assist the company. The board is looking forward to working with Brett to deliver strong results for all stakeholders.”

Mervis will continue as executive chairman, and Alison Cook will serve as CEO until Charlton joins. After that, Mervis and Cook will resume their responsibilities as non-executive chairman and non-executive director, respectively.

Chemist Warehouse acquired a 10-per-cent stake in consumer products supplier McPherson’s last year as part of a larger strategic distribution collaboration between the two companies.  

ASX-listed winemaker Treasury Wines Estate (TWE) will close its Karadoc winery in northwest Victoria due to declining wine consumption and rising costs.

Established in 1973, the Karadoc winery makes wine for TWE brands including 19 Crimes, Lindeman’s, Wolf Blass and Yellowglen.

TWE chief supply officer Kerrin Petty said the decision was a “last resort” after the company looked at all other options.

“A number of factors contribute to our shifting vineyard footprint including changing consumer trends and wine preferences as well environmental changes such as higher temperatures and reduced access to water.

“This has meant divesting some of our vineyard assets but also looking at opportunities to expand our footprint in new locations for future growth.”

According to SMH, the closure would result in the loss of 60 jobs, however, the company said necessary assistance would be provided to help staff land roles in the local winemaking industry.

The winemaker will also divest its commercial vineyards in Lake Cullulleraine, Victoria and Yankabilly, NSW.

Following the closure mid-next year, the brand’s wine will be produced through TWE’s winemaking partners – Zilzie Wines and Qualia – and at TWE’s Barossa winery in South Australia.

In May, the winemaker said it was looking to sell off underperforming brands to cut costs and focus more on growing its higher-value and luxury portfolio.

Non-alcoholic spirits maker Lyre’s has completed its latest “strategic” funding round, raising nearly $34.5 million led by investors DSquared and Morgan Creek Consumer Fund and its existing shareholders.

Founded in 2019, Lyre’s Non-Alcoholic Spirits is a range of 18 alcohol-free classic spirits, eight ready-to-drink cocktails and non-alcoholic sparkling wine.

Experiencing “extraordinary” year-on-year growth, Lyre’s said the investment would help expand its global supply footprint and “drive momentum” in key markets such as Australia, Europe, North America and the Middle East.

The company claims to sell one bottle every 30 seconds in more than 60 countries across different channels.

Kristy Bloomfield, senior VP at Lyre’s, said the company is delivering programs and tactics to introduce the non-alcoholic category to a wider audience. 

“It is an exciting time for the brand as more and more people choose Lyre’s, as reflected in our exceptional growth,” said Bloomfield. 

“Consumers across ANZ can now enjoy a Lyre’s in 5000+ venues including Qantas Lounges, Accor Hotels, all major retailers, and the leading restaurants across ANZ.”

Following the seed funding round, Lyre’s appointed former chief marketing officer Paul Gloster as its new CEO, taking over from founder Mark Livings.  

“Our new expanded leadership structure ensures accountability across all our strategic priorities and business functions,” said Gloster. 

“I am excited to work with such a capable and passionate team that is energised and ready to lead the business into our next exciting stage.”

Gloster joined Lyre’s since its establishment in 2019, overseeing growth for the company in the US. The company said he was key to delivering the company’s “outstanding growth”, brand health, and equity position.

He also previously worked for Coca-Cola Amatil in Australia and Pacific Beverages.

Collins Foods, the ASX-listed operator of KFC and Taco Bell chains in Australia, and KFC in Europe – broke the US$1 billion sales threshold in its home market last year.

For the year to April 30, revenue from continuing operations rose by 14.2 per cent to $1.35 billion with growth across all business units.

KFC Australia’s revenue grew 10 per cent to $1.05 billion when compared to the prior corresponding period while same-store sale growth was up 5.8 per cent, driven by significant e-commerce growth.

Delivery, web and app sales contributed nearly a quarter of all sales in the second half in addition to increased accessibility through partnerships with major aggregators, including Uber Eats.

KFC’s Europe division delivered double-digit sales growth of $249.5 million, up 31 per cent while same-store sales were up 13.9 per cent.

Taco Bell’s revenue increased 36.1 per cent to $48.7 million, with the addition of eight new restaurants during the year.

Underlying tax-paid profit from continuing operations fell to $51.9 million while underlying EBITDA fell to $205.1 million.

In a results filing, the company said it expects inflationary pressures to remain for much of the next year, however, plans to maintain its long-term growth strategies.

That strategy includes a trial of click-and-collect at its Queensland and Victorian restaurants and the steady rollout through UberEats which is contributing to increased brand awareness.

Drew O’Malley, MD and CEO of Collins Foods, commended KFC’s strong store sales performance in Australia and Europe in the face of challenging economic conditions.

“Whilst inflationary pressures have played into our profitability in the short-term, our long-term growth plans remain on track, and we will continue to prioritise providing exceptional value across each of our brands as a primary driver of customer retention and engagement.”

Therese Frangie has been named Mad Mex’s CEO as founder and former chief Clovis Young moves on to become MD.

Frangie, the former COO of the business, will now look after the day-to-day operations of the company and focus on growing the brand into more stores.

Of her appointment, Frangie said she will be “laser-focused” on delivering sustainable growth and expansion while not wavering from operational excellence.

Meanwhile, Clovis Young who started Mad Mex in 2007 said it was the “right time” for Frangie to “officially step into the CEO role”.

“As the business size and scale increase, Therese has the operational excellence and leadership capabilities to run the day-to-day business.

“She has been a driving force over the past six years and knows the business inside and out. This transition in the role allows me to stay connected to the strategic goals of Mad Mex and better leverages my entrepreneurial strengths,” said Young.

The proportion of Australians who consume alcohol has increased since the pre-pandemic period, says market research company Roy Morgan.

In the year to March, 13,709,000 Australians – or 67.6 per cent of people aged 18 years and over – consumed alcohol in an average four-week period when compared to 66.3 per cent in the year to March 2020.

The increase is driven by the ready-to-drink (RTDs) category which registered an increase in consumption from 10.8 per cent pre-pandemic to 20.8 per cent now.

Consumption of wine, the most popular alcohol during the pandemic, has increased from 41 per cent pre-pandemic to 43.9 per cent in the year to March.

Meanwhile, beer has lost the momentum it had gained during the early stages of the pandemic. Now, fewer than a third of Australians – or 32.2 per cent – consume beer, down from 37.6 per cent pre-pandemic.

Spirits consumption has also recorded a meagre decline of 27.5 per cent from 28.7 per cent pre-pandemic.

Roy Morgan CEO, Michele Levine, said alcohol consumption amongst the Australian population is now “reasserting itself”.

“The standout performer of the last few years has been RTDs which have kept increasing despite the ending of lockdowns and all pandemic-related restrictions,” said Levine.

“The emerging trends suggest consumption of wine and spirits looks set to return to pre-pandemic levels while RTDs such as vodka, gin, bourbon and rum have been on a sharp rise in recent years and that trend could well continue at the expense of beer consumption which has continued its long-term decline.”