Mauna Loa
deal voted down

C.Brewer Homes
merger rejected

By Russ Lynch
Star-Bulletin

Mauna Loa Macadamia Partners LP failed to win shareholder approval today for its proposed acquisition of C. Brewer Homes Inc. and the merger was canceled.

At a shareholders meeting this morning in Honolulu, at least 30 percent of the 7.5 million outstanding Mauna Loa shares were not voted. Of the remainder, half were voted against the proposal and half the shares -- which technically are units in a limited partnership -- were voted for it, according to a Mauna Loa press release.

To go ahead with the deal, the company needed a majority of outstanding shares voting in favor.

The company believed that merging C. Brewer Homes into Mauna Loa would have increased the value of the Mauna Loa shares, John W.A. "Doc" Buyers, Mauna Loa chairman, said in a statement after the meeting. Buyers is also chairman of C. Brewer Homes.

"However, while we personally believed that the acquisition represented an outstanding opportunity for the partnership, it is obvious that a significant number of our unit-holders prefer the existing strategy and structure of the partnership," he said.

The plan called for the exchange of two-thirds of a Mauna Loa share for each share of C. Brewer Homes. C. Brewer Homes would then merge into Mauna Loa and the surviving entity would have been called Hawaii Land & Farming Co.

Management of both businesses pushed the idea because Hawaii Land & Farming would enjoy the partnership tax status that the macadamia nut company has. Under a 1997 law, the business could remain a partnership, paying a tax equal to 3.5 percent of its revenues, rather the 35 percent income tax rate that applies to corporations.

The plans also called for phasing out of C. Brewers' home-building business after the merger and instead selling land to other developers who would build the homes.

Mauna Loa shareholders may have found the new structure too confusing and may have responded to criticism that Mauna Loa would be inheriting too much debt from C. Brewer Homes, observers said.

"I'm surprised that it was rejected, because it was my feeling that there were enough insider votes to approve it," said Honolulu analyst Randy Havre of Honolulu Venture Capital.

"But I'm not surprised that the people (shareholders) voted against it," Havre said.

One stockholder, New York investor Channing Lushbough who recently bought 7,000 Mauna Loa shares, had written to other shareholders urging them to vote against the merger. He said Mauna Loa would be inheriting C. Brewer Homes' "real financial trouble" including $20 million debt due at the end of the year.

Mauna Loa President Kent Lucien responded with letters to shareholders attacking Lushbough's arguments. Lucien said Lushbough distorted the facts of the pending deal.

C. Brewer Homes is not in financial trouble and has begun reporting profits, he said. Management believes Mauna Loa would have no problem refinancing the debt because Mauna Loa has strong working capital, one letter said.

Lucien told Mauna Loa shareholders that Mauna Loa would be getting a real estate bargain by paying the equivalent of about $20 million, or $2.40 a share, for C. Brewer Homes which has 2,700 acres of land on Maui, Kauai and the Big Island. Land sales by the company so far this year have averaged more than $79,000 an acre and Mauna Loa would have been paying the equivalent of $14,226 an acre for Brewer Homes' lands, said one management letter.