Why the Costa (ASX:CGC) share price is down 4% today

This horticulture company has raised funds to make a key acquisition…

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The Costa Group Holdings Ltd (ASX: CGC) share price has returned from its trading halt and is tumbling lower.

In early trade, the horticulture company's shares are down 4% to $3.26.

Why is the Costa share price tumbling lower?

The catalyst for the weakness in the Costa share price this morning has been the completion of an institutional entitlement offer which was launched to raise funds for a major acquisition.

According to the release, the institutional entitlement offer was successfully completed, raising approximately $114 million. Management notes that it was strongly supported by eligible Costa institutional shareholders, who took up approximately 90% of their entitlements.

Furthermore, and institutional shortfall bookbuild was undertaken with a clearing price of $3.30 per new share, representing a $0.30 premium to the offer price of $3.00 per new share. The offer price was an 11.8% discount to its last close price.

Costa will now push on its with retail entitlement offer, which is aiming to bring the total funds raised to $190 million.

Why is Costa raising funds?

Costa is raising funds to acquire the business and assets of 2PH Farms for $200 million in cash.

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.

Management notes 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 and potential synergy benefits.

Costa's CEO and Managing Director, Sean Hallahan, said: "The acquisition of 2PH provides Costa a larger and stronger citrus business with an attractive growth profile. 2PH will complement and enhance our production footprint, our variety offering and market opportunities, both export and domestic. We are delighted to take ownership of 2PH and look forward to supporting its continued success and its globally recognised brand and reputation for quality citrus varieties."

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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