Mac-nut grower may buy MacFarms

ML Macadamia Orchards LP has signed a letter of intent to buy the nut processor's assets

Big Island-based ML Macadamia Orchards LP, seeking to "ensure its future," has signed a nonbinding letter of intent to buy the assets of MacFarms of Hawaii LLC, allowing the state's largest mac-nut grower to expand into processing and marketing.

ML Macadamia, which owns and leases a total of 4,169 acres of orchards, also has agreed to lease the 3,912-acre macadamia orchard owned by MacFarms affiliate Kapua Orchard Estates LLC.

The deal, slated to close early next year, is subject to ML Macadamia's completion of due diligence, a definitive purchase agreement and the approvals by the board of directors and owners of ML Macadamia, and by the members of MacFarms and Kapua. No financial terms were disclosed.

"I think the timing is right," said Dennis Simonis, president and chief executive of ML Macadamia. "I think the Hawaii industry needs to come together and I think this will help. We would like to ensure our future. We want to be a processor and marketer, and I think this will allow us to go on indefinitely."

ML Macadamia produced 21.7 million pounds of wet, in-shell nuts in 2005, more than one-third of the 60 million pounds produced statewide. MacFarms, the state's second-largest processor and grower, produced 12 million pounds in fiscal 2004. A 2005 number was unavailable. The combined company would control 8,081 acres of the 18,000 total harvested macadamia nut acres in the state.

MacFarms markets macad-amia nuts both industrially and under the brand names MacFarms, Kona Select and Hula Princess.

ML Macadamia's bid for MacFarms comes two years after ML Macadamia successfully thwarted an attempt by Mauna Loa Macadamia Corp., the state's largest nut processor and marketer, from buying MacFarms. ML Macadamia and other Big Island growers sued to stop the takeover on antitrust grounds, and the two sides abandoned the merger before a judge was to rule on a preliminary injunction. Mauna Loa has since been sold to the Hershey Co.

If the Mauna Loa-MacFarms merger had gone through, Mauna Loa would have controlled more than three-quarters of the state's macadamia nut processing capacity and would have left growers with few competing buyers for their nuts.

The state Attorney General's Office investigated the previous proposed merger. The agency declined to comment yesterday on this latest deal.

Simonis said ML Macadamia's pending purchase of MacFarms would not raise the same antitrust concerns because there still would be four main processors on the Big Island instead of two of them joining forces. Besides ML Macadamia, which would take over MacFarms' operations, the other main processors are Mauna Loa, Hamakua Macadamia Nut Co. and Island Princess Macad-amia Nut Co.

ML Macadamia used to sell all of its nuts exclusively to Mauna Loa. Over the last two years, ML Macadamia has restructured its agreements and now has contracts to sell its nuts to the different local nut processors.

"We have some fixed-price contracts and some market-based contracts and I think we've spread our risk and diversified and made everyone stronger," Simonis said.

However, Richard Schnitzler, president and co-owner of Hamakua Macadamia Nut, the state's third-largest processor, said he was "shocked" by the proposed deal.

"I don't know what this means to us," Schnitzler said. "We're under a new contract with (ML Macadamia) to supply us with 50 percent of our annual (processing) supply starting in January. Now, they are a competitor, or will be if this transaction goes through. I don't see a whole lot of difference (from the previously proposed merger.) It's almost the same deal but they changed places."

Schnitzler said Hamakua processes 12 million pounds annually of in-shell nuts, which now will include the six million it will receive from ML Macadamia. "I don't know if they'll buy nuts from the other growers because they'll have a very large supply of their own," Schnitzler said.

Simonis said ML Macadamia will honor all its contracts, which all end within five to six years.

"We're going to run our plant to capacity," he said. "Our own nuts probably have to take priority, but we'll try to process as many nuts as we can because MacFarms has its own supply."

Simonis said the merger would not result in any layoffs because "it's hard to find good employees."

David Rietow, interim president at MacFarms, didn't return several phone calls. Rietow took over the reins last month for Hilary Brown, who left the company to get into real estate, according to Simonis.

Robert Sparks, the chairman and part-owner of MacFarms, would only say that "we're very pleased with the terms and with what ML Partners had offered."

Simonis said more than half of Mauna Loa's supply next year will come from foreign sources, but that ML Macadamia intends to promote Hawaii macadamias heavily.

"I believe it will help the Hawaii industry," Simonis said. "We want to try to grow the Hawaii industry to make it sound."

Macadamia nut prices peaked in late 2004 and have fallen since.

MacFarms, which established its orchard in 1962, was purchased by Tennessee-based Sparco Management LLLP and its affiliates in 2003 from Blue Diamond Growers of Sacramento. It is privately held and is not required to disclose its financial information.

ML Macadamia, which is publicly traded, generated $17.4 million in revenue and had net income of $771,000 in 2005.

Simonis said a majority vote from the 7.5 million shares owned is needed to approve the deal.