Mac nut
merger crumbles

The state's top two macadamia
processors drop a merger plan
when faced with an antitrust lawsuit

The state's two largest macadamia nut processors have abandoned a merger plan that had sparked an antitrust lawsuit and fears of a monopoly in one of Hawaii's signature agricultural products.

The court tussle over the merger agreement between Mauna Loa Macadamia Nut Corp., the state's largest processor, and MacFarms of Hawaii LLC, Hawaii's No. 2 processor and grower, had become too much of a "distraction" for Mauna Loa, the company's attorney Margery Bronster said yesterday.

The plaintiffs in the antitrust challenge -- led by ML Macadamia Orchards LP, the state's largest grower, and Hamakua Macadamia Nut Co., the third largest processor in the state -- had contended that the merged company would control about 80 percent of both the processing and supply of nuts in the state.

Bronster said Mauna Loa had scrapped the merger plan in exchange for the lawsuit being dropped so that the company could focus on its real objective, obtaining sufficient nut supply to meet burgeoning demand.

"The main issue for Mauna Loa has never been about the processing but about acquiring sufficient nut supply. This settlement will allow us to proceed with nut purchases," she said.

Judge Greg Nakamura of the Hilo Circuit Court had been scheduled to issue a ruling yesterday on the plaintiffs' motion for a preliminary injunction to block the merger, but the hearing was canceled after the plaintiffs told the court they were dropping their suit.

"We believe things turned out correctly," said Dennis Simonis, president and chief operating officer of ML Macadamia Orchards. "MacFarms is independent and it should stay that way. We think it's important that all of us in the industry, here in Hawaii, need to work together."

ML Macadamia had said a merger would have forced it to continue selling its nuts exclusively to Mauna Loa because no other processor would have been able to handle the volume of ML Macadamia's annual nut production.

Hamakua, meanwhile, feared it would lose out in pricing power since it has 10 percent of the processing market and its largest competitor would have had 80 percent.

"This outcome is a win-win for all parties involved," said Richard Schnitzler, president of Hamakua.

Mauna Loa Macadamia Nut Holdings Inc., the parent of Mauna Loa Macadamia Nut Corp., said in announcing the merger plan in July that an affiliate would buy the processing and marketing assets of Big Island-based MacFarms for an undisclosed price.

The agreement also called for the affiliate, MacFH Inc., to sign an agricultural lease with Kapua Orchard Estates LLC covering 3,917 acres of Big Island macadamia orchards.

Mauna Loa, which already has its own Big Island nut processing plant, later offered to divest the MacFarms plant to alleviate the antitrust concerns, but that offer was dismissed by the merger's opponents.

"Who would buy it? Without a nut supply, what good would it be?" said James Case, senior partner at law firm Carlsmith Ball and a board member of ML Macadamia's managing partner, ML Resources Inc.

Though it has freed itself from a potentially long legal battle, Mauna Loa, which does not grow nuts, still faces a challenge in acquiring control over enough nut supply to meet the growing popularity of macadamias worldwide, said Mauna Loa attorney and spokeswoman Cynthia Quinn. The firm will be looking to buy as much of Hawaii's nut production as possible.

"We've spent so much on marketing our product and that has been successful. That's good for Hawaii. But now there's too much demand," she said.

Mauna Loa is free to acquire as much nut supply as it wants, ML Macadamia's Simonis said, as long as they don't go too far.

"I don't have a problem with them buying nuts, as long as they don't totally control the nut supply," he said.