The Case for the MLMO Acquisition of MacFarms

In 1986, the master limited partnership called Mauna Loa Macadamia Partners, L.P. (MLMO) was formed. Its business was to grow macadamia nuts for sale to others on approximately 7,000 acres of orchards on the island of Hawaii.

Mauna Loa Macadamia Nut Corporation (“Mauna Loa”), the world's largest processor and marketer of macadamia nuts, entered into long-term nut purchase contracts with MLMO for it to sell the entire production from its orchards to Mauna Loa at prices provided for in the contracts. Mauna Loa would process and market the nuts under the Mauna Loa® brand name with a nut price paid to the Partnership that was tied to the financial performance of Mauna Loa.

For the past 20 years, MLMO has sold almost all of its annual production (about 21 million WIS pounds, or 1/3rd of the macadamia nuts grown in Hawaii) to Mauna Loa.

In December 2004, Mauna Loa was purchased by The Hershey Company.

Since MLMO had only two years left on the nut purchase contracts with Mauna Loa, it sought to extend or renegotiate the contracts, but was not able to reach agreement on acceptable terms. As a result, MLMO has entered into contracts with other Hawaii processors for about 14 million pounds of its nuts, or about 70% of its average annual production. It has also amended its final contract with Hershey by shortening its expiration date to six years in exchange for more favorable pricing. This contract is expected to account for about 6 million pounds of MLMO’s production.

MLMO has signed a Definitive Acquisition Agreement to purchase

certain assets of MacFarms subject to approval by the SEC and its unitholders.

The primary purpose of the Acquisition is to enable MLMO to vertically integrate by acquiring and operating a processing and marketing arm, thereby giving it the ability to better control the pricing for its nuts, as well as to expand its operations and profitability.

The Acquisition provides that MLMO will acquire all farming, processing and marketing assets of MacFarms, together with its working capital. This will include all tangible assets attributable to the orchards, such as rolling stock and fertilizer, all nut processing equipment and all intangible assets of MacFarms, such as its “value” brands now being sold directly to consumers and their trademarks.

MLMO will be able to grow revenues and profits within its existing industry and core competence, providing significant operational synergies and reducing dependence on the marketing efforts of others. The Acquisition will also provide an additional source of macadamia nuts, which is expected to improve the Partnership’s farming cost structure and economies of scale.

Finally, the Acquisition will allow the Partnership to market premium Hawaiian macadamia nuts under its own Hawaiian brand names, which will improve margins and build brand equity.

MLMO believes that unless it takes an active role in processing and marketing high quality, Hawaii-grown macadamia nuts, Hawaii nuts will end up being treated as a commodity, competing solely on price with foreign nuts, to the detriment of MLMO as a grower, as well as all other growers of macadamia nuts in Hawaii.

The Acquisition gives MLMO control of its own destiny

for the benefit of its industry peers and of all its unitholders