Foes line up against
mac nut merger
A prominent director of Hawaii's largest macadamia nut grower said the state's largest mac-nut processor should not be allowed to buy its top competitor unless the processing plant it would acquire is sold off before the deal closes.
James Case, senior partner at law firm Carlsmith Ball and the father of U.S. Rep. Ed Case, said Mauna Loa Macadamia Nut Holdings Co. didn't go far enough earlier this week with its offer to the state attorney general to divest the processing plant of MacFarms of Hawaii LLC. Mauna Loa announced July 9 that it plans to purchase MacFarms.
"We don't want them to acquire it, fuss around and sell it later," Case said. "We don't think they should acquire it at all."
Mauna Loa President Darrell Askey, addressing antitrust concerns, said Mauna Loa would divest the MacFarms processing plant "in a fairly straightforward and prompt fashion."
But Dennis Simonis, president and chief operating officer of top grower ML Macadamia Orchards LP, said he thought a divestiture would take some time.
"Who wants to buy a processing plant if they don't have the nuts to run through it?" Simonis asked.
Case, who has been on the board of ML Macadamia's managing partner, ML Resources Inc., since 1986, said without the divestiture that the merger would be "a complete disaster" for the 650 macadamia nut growers on the Big Island because the parent of Mauna Loa Macadamia Nut Corp. would control about 85 percent of the processing capacity in the state.
ML Macadamia has informally told Mauna Loa that the grower would be willing to purchase MacFarms' processing plant and that it also knows of another party willing to buy it, Case said.
"What we'd like to have happen is that they not acquire it, but acquire the orchards," he said. "We have no problem with that."
Askey said Mauna Loa, which would keep the MacFarms brand in some instances, is mainly concerned about having enough nuts to grow its business. MacFarms is the state's second largest mac-nut processor and grower.
"We think (the acquisition) is very important not just for the business, but for the Hawaii industry and for the growers who make up that industry," said Askey, noting that the state's supply of the global market has shrunk to less than 25 percent from 90 percent in 1980.
Mike Purdy, president and chief executive of Island Princess Macadamia Nut Co., said Mauna Loa is overstating the importance of the merger.
"The spin that Mauna Loa puts on this being good for the state of Hawaii isn't necessarily true," said Purdy, whose company grows, processes and markets nuts, and competes with Mauna Loa. "We think it's good for Mauna Loa, but the net impact on Hawaii and the industry of macadamia nuts is a zero net effect. The world demand is 40 percent greater than the world supply, so all the nuts in Hawaii are going to be sold anyway."
Purdy said growers who are not locked into contracts are getting 91 cents a pound now for their nuts.
ML Macadamia, which has contracts that allow Mauna Loa to exclusively purchase ML Macadamia's nuts, was paid an average price per pound of 50 cents by Mauna Loa in the second quarter.
"We're very unhappy," Case said. "We get a very small price for our nuts compared to other growers. For us, it's a little better than break even."
Purdy, though, said ML Macadamia signed the contracts in the mid-to-late 1980s and therefore shouldn't complain.
"Back in 1988, we couldn't give nuts away because prices were so low, but people in contracts with Mauna Loa at that time were very happy because prices they got were higher than other farmers," he said.
Case said he's concerned about what will happen at the end of 2006 when a large ML Macadamia contract expires that accounts for more than 12 million pounds of nuts.
"We don't want to be in the position 2 1/2 years from now where we bend down on our knees and ask Mauna Loa to please pay us for the nuts," Case said. "What if the price is 45 cents or nothing? We have no place to go. None of the other processors can take our nuts because they don't have enough capacity."
Richard Schnitzler, president of Hamakua Macadamia Nut Co., said he takes issue with Mauna Loa controlling 85 percent of the crop because Mauna Loa would be able to go to retailers and bulk markets and offer lower prices than its competitors. Hamakua is Hawaii's third largest processor of macadamia nuts.
"A larger percentage of the orchards that Mauna Loa pays are under contract and Mauna Loa is paying these farmers a very low price compared with the spot market," Schnitzler said. "The very low price they're paying for these crops would allow them to sell to the retail markets at very low prices than other retail marketers could get who have higher costs."