Votes authorize smaller board, more sales of common stock
By HARRY EAGAR, Staff WriterAfter hearing about management’s plans to "survive to thrive" following a disastrous 2009, Maui Land & Pineapple Co.’s shareholders voted Thursday to accept two proposals designed to carry the company through its debt crisis.
The main vote, carried by 83 percent of the company’s shares and by 99 percent of the shares represented in person at Kapalua by owners or proxy holders, was to authorize 20 million shares of common stock.
This will be a rights offering, rather than an approach to the public market. Each shareholder would have a chance to buy new shares in the proportion that he or she owns of old shares.
Since there are 23 million shares outstanding, the offering is for almost, but not quite, one new share per old share.
And since Steve Case owns more shares than anybody, the offering’s success will depend upon his willingness to put new money into the company.
President Ryan Churchill said after the meeting that he couldn’t comment about whether Case had indicated he would be willing to put more tens of millions into the company.
The stock has lately been trading in the $5 range and ended Thursday at $4.98. A fully subscribed rights offering would bring in perhaps $100 million.
If any shareholder elected not to exercise his right to put in more cash, those rights would "go back in the bucket," said Churchill, and other shareholders could pick them up. Or not.
As the company fights for its life, there is always the possibility that it would not attract new equity. Next year, it must pay off at least $57.8 million and possibly as much as $96 million or it will go into default. (Another possibility would be renegotiating its debts, but that is not part of management’s strategy.)
Thus a successful rights offering, combined with whatever real estate sales come ML&P’s way, would set up the company to go forward as a resort and real estate development business with manageable debt.
The second vote taken Thursday was to reduce the board from 10 members to between five and nine.
That was done, said Churchill, to reflect the simpler company now that Maui Pineapple Co. has been closed.
The vote had two parts, to reduce the size of the board and to elect Case, Chairman Warren Haruki, David Heenan, Kent Lucien, Duncan MacNaughton, Arthur Tokin and Fred Trotter III to one-year terms.
This proposal attracted the votes of 88 percent of all shares.
Churchill said no one at the meeting brought up the subject of allowing ML&P to be acquired. The management’s purpose is to continue as an independent, Maui-based real estate and resort business.
It has been a tough business lately. The company lost $123 million in 2009 and reinvented itself. The pineapple subsidiary was shut down. Two-thirds of the employees were let go, and real estate was sold to enable debt to be paid down by one-third.
Losses in the first quarter of 2010 were pared to under $3 million, with real estate development in abeyance and operating revenue coming mostly from Kapalua.
With the state’s visitor industry suffering the effects of a worldwide recession, the resort is not profitable, although some gains over last year were noted.
Kapalua took in about $5 million, but its expenses were more than $7 million. Churchill said that was in part because corporate expenses are not spread so widely as they were when Maui Pine represented more than half the total revenue.
The company remains top heavy. It has about 200 employees and 1,800 retirees.
The company cut off medical benefits and life insurance for its nonunion retirees in February, but most of its pensioners are covered by union contracts.
It also has other uncertainties. Unable to recruit a title sponsor for its LPGA tournament, it dropped out last year, resulting in a lawsuit. That is in mediation, and the company hopes to escape with minimal monetary damages.
It may also have to find $35 million to purchase (at cost) the spa, beach club and store that were part of the Kapalua Bay Holdings joint venture that replaced the Kapalua Bay Hotel.
The main component of that project, the Residences at Kapalua, is $300 million in the hole, but ML&P is not obliged to cover any further losses. It has written down its investment to zero.
There are still units to sell at the Residences. And, if they sell, and if the $300 million shortfall is ever covered, ML&P could record a profit on the excess. But the likelihood of that happening is small, and this year nil, in the current "difficult" resort real estate market.
At the moment, the company is in compliance with its debt covenants and should remain that way until March, when it must cover its $57.8 million in obligations somehow or have all its loans thrown into default (because they have cross-covenants that put all in default if any one defaults).
