Australia: Costa Group closes two grape farms

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Australia: Costa Group closes two grape farms

Just days after making headlines over news of a possible sale or IPO, Australia's largest fruit and vegetable company announced it would be shutting down two grape operations. shutterstock_109505768

Toowoomba-based newspaper The Chronicle reported one of the farms to close would be Grape Exchange in St George, Queensland.

In a statement, corporate affairs manager Michael Toby told the publication a "changing production landscape in the industry" was behind the closure of the St George operation and a farm in Menindee, New South Wales.

"It is regrettable that changed industry and market conditions have led to a decision to reduce our grape farming footprint," Toby was quoted as saying.

"Costa recognises that the farms have been an important source of employment and economic activity in the St George and Menindee areas and this decision has not been taken lightly.

"Costa acknowledges the dedication and hard work of its staff and contractors at these farms and will do whatever we can to minimise the impact of this decision."

Toby told The Chronicle that Costa would keep supplying the domestic market with table grapes by investing in company-owned vineyards and through local grower partnerships.

On its website, the company also says it has grape operations in Munduberra, Queensland, as well as a grape warehouse in Mildura, Victoria.

Frank Costa, who owns 50% of the company along with other family members, told national newspaper The Australian he would prefer a trade sale of the company, with an IPO set to raise between AUD$300-600 million (US$238-475 million) for a total enterprise value of AUD$800 million to AUD$1 billion (US$634-792 million).

"We’re at the very early stages of the process, so we’ve appointed two banks to look at the right way to go," Costa told the newspaper.

"But we’re 18 months to two years from doing anything."

Costa told the Australian Broadcasting Corporation (ABC) that Goldman Sachs and UBS would handle the exit, explaining a trade deal was preferred because of its simplicity.

"You just complete the deal, make sure your management team is looked after properly and the company goes on as it is today," he was quoted as saying.

IBISWorld Australia senior analyst Caroline Finch told the ABC the Costa Group's substantial size, with revenue of AUD$688 million (US$545 million) last year, meant it would be difficult for potential Australian buyers to absorb.

"So we would definitely expect interest from overseas, as proved to be the case with Moraitis Group," she said, highlighting Moraitis was on a similar trajectory as Costa before the acquisition from Hong Kong-based Chevalier International was made.

Finch discussed Australia's produce market conditions with strong growth in recent years due to recovery from drought, but said potential buyers would probably be looking to Costa's growth opportunities abroad.

"The domestic market would have to be relatively saturated, so either you're looking to carve out growth in the supply chain in Australia or in the case of Costa Group, they have started moving into wholesaling internationally," she told the ABC.

"And we would expect that for any potential buyer, be it IPO or trade sale, the international growth would almost certainly have much higher potential and would be attracting a lot of interest."

Costa has joint ventures with Driscoll's and Morocco-based African Blue, as well as 'strategic alliance' partners Monterey Mushrooms, California-based fruit group Sun World, and cold chain company Polar Fresh.

The produce giant says it also works with some of these companies for the purposes of research and development to provide improved and innovative varieties.

Photo: www.shutterstock.com

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