Mac nut merger
draws antitrust scrutiny
A proposed merger between Hawaii's top two macadamia nut processors has raised antitrust concerns with the state attorney general.
But the parent of Mauna Loa Macadamia Nut Corp. told the Attorney General's Office yesterday that it is willing to divest the processing plant it would acquire in the deal to seal its merger with Big Island-based MacFarms of Hawaii LLC.
Without the sale of the MacFarms processing plant to an independent party or a co-op, Mauna Loa Macadamia Nut Holdings Inc., which also has a plant on the Big Island, would process about 85 percent of the state's macadamia nut crop.
"We have had conversations with (the Attorney General's Office,) and I think one of their antitrust concerns is that we would have too great a proportion of the processing capacity in the islands," Mauna Loa President Darrell Askey said. "We would like for there to be availability for processing nuts for any and all growers. We're not trying to control that. We need nut supply."
Askey said Mauna Loa, which markets and processes nuts but doesn't grow them, has spent upward of $15 million in the last three years marketing the Mauna Loa brand and Hawaii as one image. The company has $7 million in marketing budgeted for its current fiscal year.
"When you compare that to other companies in the industry, that pales by comparison," Askey said. "We truly believe we're doing more to promote the industry than anybody else in the industry, or the rest of the industry combined."
Dennis Simonis, president and chief operating officer of ML Macadamia Orchards LP, the state's largest macadamia nut grower, said "it's pretty clear" to him that the merger would create a monopoly. Mauna Loa has an exclusive nut purchasing contract with ML Macadamia. MacFarms, which also processes and markets nuts, is the state's second-largest grower.
"If this acquisition goes through, Mauna Loa will control between 80 and 85 percent of the island's process capacity, so growers will have very few choices as to where to sell their nuts and Mauna Loa will have a market share that probably exceeds 80 percent of the retail business in Hawaii," Simonis said.
"I think consumers will kind of be in the same boat with very few choices. The likely result is lower prices to growers and higher prices to consumers. Mauna Loa will swear that's not going to happen, but they're in a position to do that."
But Askey said Mauna Loa isn't about to shoot itself in the foot.
"If we're going to spend all this money on a facility, we're certainly not going to just mothball the thing," he said. "We want it up and running. We want to generate a return on that investment. We want growers to thrive and to prosper. And I've said it before, and I'll probably say it again, we want nuts.
"That's what this is all about. Why would we put them out of business? Why would we buy a facility to put the suppliers to that facility out of business? It's counterintuitive."
Deputy Attorney General Mike Kimine said his agency was "very aware" of the merger but would not comment on the state's plans.
MacFarms General Manager Hilary Brown said he could not comment.
Askey said he wants to rebuild some of Hawaii's global macadamia nut market share, which has shrunk to less than 25 percent from 90 percent in 1980.
"If we charge too much, the Australians are going to come in as they did 10 years ago and dump nuts into this market and undercut us," he said. "We have to price fairly and competitively."
Askey said MacFarms processed 12 million pounds net, wet-in-shell, in the just-concluded fiscal year but that revenues were "south" of the $30 million it had in the 1999 fiscal year when it was sold to Blue Diamond Growers of Sacramento, Calif. Blue Diamond sold MacFarms to Tennessee-based Sparco Management LLLP and its affiliates in June 2003.