MAUI NEWS
Wednesday, November 4, 2009
By HARRY EAGAR, Staff Writer
KAHULUI – Maui Pineapple Co. will shut down by the end of this year, Maui Land & Pineapple Co. announced Tuesday. Several operations at Kapalua Resort will be transferred to other operators, including Outrigger Hotels & Resorts, which will manage the 206-unit Kapalua Villas.
In all, about 285 employees will be laid off. Another 133 will be offered employment at ML&P partner companies. ML&P board Chairman Warren Haruki said Maui Pine has lost $115 million since 2002.
"Unfortunately, despite our exhaustive efforts to revitalize the pineapple business over the last few years and efforts to keep agriculture jobs on Maui, market conditions have not improved and pineapple operations at MPC are not financially sustainable," he said.
Of the lost jobs, 193 belong to ILWU Local 142 members, the last survivors of rounds of layoffs, pay cuts, concessions and closings. Almost all are veterans. Willie Kennison, ILWU Maui Division director, said: "It was coming, but we had hope. We were grasping at straws, hoping for the best."
ML&P Vice President Ryan Churchill said the company had made a last-ditch effort to preserve pine on Maui by negotiating with some former Maui Pine executives and employees who were trying to form a spinoff company. It would have taken over some of the operations and kept growing pineapple.
Kennison said the union was prepared to make some concessions to the new company to help it get on its feet.
Maui Pine was prepared to put in some capital, said Chief Financial Officer John Durkin, but members of the group couldn’t find the necessary start-up capital, even though they looked literally to the ends of the earth. Going forward with an undercapitalized business would only have been a setup for failure.
Durkin said Maui Gold pine is profitable on Maui and the Neighbor Islands, but not really so on Oahu, where it competes with Dole, the surviving pineapple plantation in the islands. But every fruit sold on the Mainland lost money. Prices there are just too low, he said.
ML&P’s Kapalua Resort also has lost tons of money, but it is considered to have better prospects than pineapple. The company reported losing $11.4 million on resort operations for the first nine months of this year, and it reported last week that it lost all the money originally invested in the Kapalua Bay Holdings venture.
But, with the completion of the Kapalua Spa and the Residences at Kapalua, the resort is in its best condition in five years, Durkin said.
Kapalua Land Co. "will make strategic changes to its business model," the company’s news release said. Instead of managing almost everything itself, it will "partner with ‘best in class’ operators in their respective fields who can manage select assets of the resort more effectively."
Although the deal has not been formally announced, Outrigger will manage the Villas. The Villas have individual owners but have been managed through the resort, which had encouraged many to upgrade their condominiums to its "gold standard" over the past few years.
Durkin said he has met with almost all the owners during the past two weeks, and they were generally enthusiastic about having Outrigger to find more tenants for them.
Outrigger Executive Vice President Barry Wallace said that deal has not been sealed, although the companies are in a due diligence period.
"We are very interested in being a part of the resort," he said.
An unnamed company will lease the new Kapalua Adventures. Its zipline ride down the West Maui Mountains has proven to be a popular attraction. Other operators will be found for resort shuttle services, resort security and the Kapalua Resort Association.
ML&P also will seek an operator for its Kapalua Farms organic operation that supplies fresh produce to the resort and also to local markets.
That leaves Kapalua Resort to operate two golf courses, four restaurants, its new spa and the retail outlets such as logo shops and Honolua Store. It also has water and wastewater treatment companies.
Kapalua Land also has valuable authorizations to develop land, including Kapalua Mauka, a large resort residential development; and commercial and residential property within the central part of the resort.
Churchill and Durkin said those developments will have to wait for market conditions to improve before anything happens. In the future, ML&P also will most likely look for joint venture partners to help finance real estate developments.
The Pulelehua new town for employee housing is also still part of the company’s future, although that West Maui project does not yet have all its authorizations.
ML&P will look for other uses for its agricultural land. About 2,500 acres are still planted in pine. The land will be converted, as much as possible, to other crops or ranching, which would bring the Honolua lands full circle. Businesses ancestral to ML&P ranched in West Maui before pineapple started in the 1920s.
Churchill said the company does not intend to sell off more large tracts of agricultural land, as happened at Pioneer Mill and Wailuku Sugar when those plantations shut down. It is unwinding its leases to and from Hawaiian Commercial & Sugar Co. Those two businesses leased from each other in East Maui, so that it is not always the case that a pine field is owned by ML&P or a sugar field is owned by HC&S.
Churchill said the company expects to keep up its water rights in West Maui, since the land will still be used for agriculture.
Although the new management put in place by principal shareholder Steve Case claims it did its best to preserve pine, not everyone accepts that.
Harold Gouveia, who worked for Maui Pine for 36 years, said Tuesday: "I seen it coming for four years, since David Cole guys came in."
Cole, a former associate of Case’s in tech businesses, was chief executive of Maui Pine in its final years. He was replaced as president and chief executive officer by Robert Webber at the beginning of this year, but Webber resigned about six months later. Haruki became chairman of the board after Cole’s departure and was named interim chief executive officer when Webber left the company in May.
Pine had been profitable in the 1980s but started losing big money as foreign canners undercut prices. Cole said that, when he took over after Case started buying into the company, that ML&P was "broken" in all three of its segments: farming, resort and development. He initiated a sweeping redirection that included rebuilding the Kahului cannery.
The company also sold off what it called "non-core" lands, and Cole and Churchill were among the buyers. The transactions were reported to be at market prices, with independent appraisals, but the land sales did not sit well with many old-timers.
One was Gouveia, whose grandfather worked for Maui Pine and whose father worked there for 45 years.
"He (Cole) bought the property he lives on from Maui Pine and made a luxury home on it," Gouveia said. "I asked him four years ago at one of the meetings, how he could sell our assets. He said it was no good for farming."
Gouveia didn’t buy that. The land had been in pine. "How can you tell us the land is no good? I told him, you are the first guy to buy something that is no good," he said.
Gouveia’s own children did not aspire to keep on at the plantation, except that they worked in the fields during the summer, as he had. But they went to college and became nurses, teachers and businessmen.
"My dad was in management, and I was rank and file," Gouveia said, but they considered they were both ohana. His father often told him: "We get everything we have because of Maui Land and Pine."
Mary Cameron Sanford, who was replaced as chairwoman of ML&P when Case took control, described the company as an ohana.
Gouveia said the same: "Mrs. (J. Walter) Cameron (wife of the man who put various assets into their modern form of ML&P along with his son Colin in the ’60s), she would come down and give us cookies and soda" when he and his friends were riding their bicycles as kids.
"That was a big thing," Gouveia said. "They took care of family. The Camerons really did a fine thing for the community."
The end of the pineapple business "really hurt," he said. "The new crowd took everything. They take advantage. They’re not for the community."
Doug MacCluer, who worked for Maui Pine for 39 years, retiring as chief agronomist, said: "It didn’t have to be that way."
He was among the group of former managers who tried to put together the spinoff business that would have kept farming pine.
MacCluer said Cole and Haruki might have a different opinion, but in his view, pine could have been saved.
"Decisions were not being made by ag people," he said. "If you are going to be a farmer, you damn well have to be a good farmer."
He faulted the decision to invest millions in a new cannery and fresh pack facility in Kahului "when Haliimaile ran just as fast and produced as high quality of product."
Cole does have a different opinion. ML&P "was in a weak position," he said, and he, as president, and the board tried what they could to turn the company around, both through cost controls and new technologies. He said ML&P "hired the best" people it could in marketing and farming.
There were "several forks in the road" during his tenure that, looking back, he can see might have had different results, Cole said.
At one point, he said, there was the possibility of selling the Maui Gold brand. He turned it down because it would not have preserved jobs on Maui.
He said he was "heartbroken" by Tuesday’s news.
As was Mary Sanford, who, with members of her family, agreed to sell their big stake in the company to Case, then regarded as a white knight riding in to save a company that had suffered losses in pine and was also experiencing problems at the resort.
At that time, ML&P was also in the commercial real estate business, owning the Queen Ka’ahumanu Center and Napili Plaza.
Those were among assets sold off, which at times allowed ML&P to show profits in recent years.
The company’s ownership structure was unusual for a publicly traded corporation. About two-fifths of the shares were held by the Cameron family or close associates, and a slightly smaller amount was held by the Weinberg charitable trusts. Only a small amount was available to trade.
By gradually buying out the Camerons, Case took control of the board, although he is not a majority owner. He replaced – in Sanford’s view, fired – her and her daughter, Claire, nominating his own people and selecting Cole as turnaround manager.
Claire Sanford, a niece of former company chief executive Colin Cameron, placed blame for the failure of pineapple squarely on the shoulders of ML&P’s board and executives.
"I’m just appalled and disgusted," she said. "I really feel the board and the leadership at Maui Pine should be ashamed of themselves."
She said she felt the board in particular had been making decisions for years that were "self-serving" and not in the best interest of the company or the island.
As an example, she pointed to the company’s decision to invest more than $17 million in a high-tech produce processing plant that ended up being abandoned, calling it a "pointless money pit."
"To have spent so much money without the vision to see how they could really pull pineapple up was, I think, very irresponsible," she said.
She said she also felt the company sank too much money into "grandiose" plans to replace the Kapalua Bay Hotel with the Residences at Kapalua, leaving it unable to save its agricultural operations.
"Historically, I see such a sad ending to what was such a great company," said Claire Sanford, whose missionary ancestors’ land holdings served as the foundation of the business more than 100 years ago.
She said pineapple meant more than jobs to Maui – providing a lot of the "identity" of the island.
Claire Sanford, an outspoken critic of Cole, spoke bitterly of his promises to save pineapple when he took over as a favorite of Case.
"I can understand that the scale that it used to be was not sustainable, but David Cole was so confident in his ability to do something – or at least that’s how he sold it to us," she said.
Under Cole’s leadership, the company reduced its pineapple operation from 6,740 acres to about 2,000 acres. It also sold 4,000 acres to raise cash, most of the land former Upcountry pineapple fields.
Last year, Cole said the cuts were necessary to try to reduce costs and save pineapple, on a smaller scale.
Claire Sanford said her family instilled in her a sense of "stewardship of the land," and a responsibility to care for it and use it in a way that would benefit the people of Maui, mostly through jobs.
"I’m just feeling really sad, and just hoping the people on the board feel the amount of shame that they should feel," she said.
The latest changes in the company’s direction were taken at a board meeting Monday. When the company announced big losses in its third quarter last week, the future of pine was said to be under review.
Durkin said although it will have lower revenues under the restructuring, it will still qualify and remain on the New York Stock Exchange.
The stock closed Tuesday up 27 cents to $6.52 on a small turnover of 32,000 shares. It had been at $16 a year ago. At today’s price, the company is valued at $50 million.
Kennison said the loss of Maui Pineapple Co. was the toughest of all the blows to have hit the Maui Division of the International Longshore and Warehouse Union in recent years. Many of the union’s members are laid off or on shorter hours at hotels, and the Maui Pine bargaining unit had been reduced by hundreds.
Two years ago, when the company made 10 percent pay cuts, the union negotiated a deal in which, if its members were laid off, they would get severance based on pre-cut levels.
Durkin said workers will be paid through the end of the year. Under the federal Worker Adjustment and Retraining Notification Act and the Hawaii Dislocated Workers Act, the company is obligated to give 60 days’ notice.
"We are hopeful that many employees in the affected resort divisions will be hired by the new management companies and owners," Haruki said. "We express our deep respect and profound appreciation to our employees for their many contributions to the company over the years."
Kennison said that when he and union agents met with employees at Haliimaile and then later in Kahului on Tuesday: "You could see, there hardly was a dry eye. They were just hoping for the best but they kind of knew it was coming."