Hershey deal
has investors
hungry for nuts

Shares of Hawaii's largest
macadamia grower have soared

Investors have been getting nutty recently over ML Macadamia Orchards LP.

Shares of the state's largest grower of macadamia nuts have spiked 22 percent to a four-year high since Hershey Food Corp. announced last month it was acquiring the company that owns the exclusive contracts to purchase ML Macadamia's nuts.

It's still unclear what the acquisition of Mauna Loa Macadamia Nut Corp. from the Shansby Group will do for ML Macadamia's earnings, but that hasn't stopped investors from shelling out money in the apparent belief that Hershey's distribution and marketing expertise will enhance ML Macadamia's value.

"I think the market is reading this as a good thing for the macadamia nut industry, and there are certain players in the market that think this is going to improve the price that the orchards get for their nuts," said James Case, a board member of ML Macadamia's managing partner, ML Resources Inc.

ML Macadamia's stock, which rose as high as $5.05 yesterday, closed up 21 cents to $4.82, its highest level since reaching $4.94 on Dec. 12, 2000. Yesterday's volume of 102,200 shares was nearly 15 times the stock's average daily volume and its heaviest trading day in nearly nine months.

"I don't think many investors really understand the price that we get paid," Case said. "Many investors may assume that we get paid an open market price, and with Hershey there building up demand, the open market price will go up. The fact is that 50 percent of our price comes from the two-year rolling average of the open market and 50 percent comes from the profit margin that Mauna Loa makes on our nuts and all nuts."

ML Macadamia, which produces about 21 million pounds of nuts annually, has been vocal about its unhappiness over the price of roughly 50 cents a pound it has been receiving for its nuts from Mauna Loa. The open market price is about 90 cents.

To that extent, ML Macadamia has been talking with MacFarms of Hawaii LLC and other processors about assuming some or all of its contracts when they expire. Four of ML Macadamia's five contracts, which account for 15 million pounds, expire on Dec. 31, 2006. ML Macadamia's remaining contract expires in 2019.

ML Macadamia also had been talking to Mauna Loa about new contracts as well but broke off talks when Mauna Loa announced in July it was acquiring MacFarms. That deal was called off by Mauna Loa after ML Macadamia and other growers and processors went to court to stop the merger.

"We have had a difficult time with the current owners of Mauna Loa and our hope is that the Hershey deal is a good thing," said Dennis Simonis, president and chief operating officer of ML Macadamia.

The Shansby Group, which bought then-C. Brewer & Co. subsidiary Mauna Loa in September 2000, has had disputes with ML Macadamia nearly from the outset. One ended up in court after Mauna Loa said it wasn't obligated to purchase ML Macadamia's unusable nuts. ML Macadamia ultimately prevailed.

In another instance, Mauna Loa was late in payments owed to ML Macadamia.

"When the Shansby Group bought Mauna Loa, the price of nuts went down immediately," Case said. "The highest price Mauna Loa paid us after the Shansby Group bought it was lower than the lowest price we ever got from C. Brewer. That affects the dividends we pay and that affects the market price."

Mauna Loa President Darrell Askey and Charles Young, Mauna Loa's vice president of operations, didn't return phone messages.

Hershey hasn't detailed its plans for Mauna Loa and a spokeswoman couldn't be reached for comment yesterday.