Foremost's undoing unclear
By Sean Hao
Advertiser Staff Writer
Foremost Dairies-Hawaii will close next month, taking away 120 jobs and leaving the state dependent on one milk processing company — yet no one seems willing to take responsibility for its failure.
The owner, who bought Foremost in January, blames the former owner for leaving the plant in disrepair. The former owner points the finger back, saying the condition of the plant was known and the price discounted to make up for it.
"This really stinks," said Ron Kozuma, business agent for the Teamsters and Allied Workers Local 996, which represents about 105 Foremost workers. "Something just isn't right."
Foremost began the year with a new owner and new hope for the 51-year-old company.
"There are no changes in operations planned, and the Kalihi headquarters of Foremost DairiesiHawaii will be maintained," said Bahman Sadeghi, a Big Island dairy owner, as he joined unidentified investors in January to buy Foremost from Osaka, Japan-based House Foods Corp.
House Foods had owned Foremost since 1987. The company says it put the business up for sale at a time when it was not profitable and did not fit with House Food's core business, making tofu and curries. House Foods said it hoped the new owner would be able to turn Foremost around.
"If Foremost was run by somebody who knew the business, they probably could make it profitable," said Theodore Roper, an attorney for House Foods. "It seemed to me that he (Sadeghi) knew what he was doing."
Sadeghi and the other investors purchased Foremost for an undisclosed price on Jan. 30. Roper says Sadeghi was aware Foremost was not profitable.
Sadeghi immediately sold the land and factory at 2277 Kamehameha Highway to Newfair Investments LLC for $9 million, then leased it back.
Newfair is run by Island Holdings Investments LLC, whose officers include Colbert Matsumoto, Franklin Tokioka and Nolan Kawano, all executives for Island Insurance Cos. Matsumoto also is a director for CB Bancshares, the parent of City Bank.
Tokioka said he invested in the Foremost facility in the interest of keeping Foremost alive in Hawai'i. "We thought it was good for the community," Tokioka said.
Sadeghi says he also bought Foremost with the intention of running the business for the long term.
"He (went) into it to be successful — that's why this is a sad time for him," said Foremost spokeswoman Lynette Lo Tom. "Anytime you put money into something, you want it to succeed."
On Aug. 10, just 6 1/2 months after Sadeghi took over the business, he made what turned out to be the first public step toward closing Foremost, announcing the company would cut 30 jobs and temporarily halt milk production.
Foremost blamed the move partially on a state inspection report that restricted the use of two milk storage tanks found in need of exterior repairs.
The state Department of Health, which wrote the report, said the tanks were only a minor portion of the facility's total storage and should not have forced Foremost to suspend production.
The temporary closure was followed by an announcement Sept. 13 that Foremost would shut down in 60 days because it could not afford to fix problems in the Kalihi factory.
Sadeghi said the problems at the plant had not been disclosed by House Foods, a charge the former owner denies.
All known problems with the facility were explained before the sale, according to House Foods, adding that Sadeghi was able to inspect the property for several months and bought the business at a discount because of its condition.
Lo Tom said Sadeghi had no comment on House Foods' claims. Sadeghi, who spoke to the media before announcing Foremost's closure, has since declined to be interviewed directly.
Others involved in Foremost, including several high-profile Hawai'i business leaders, also have failed to comment on why the milk business closed. In April, Foremost added to its board of directors Dennis Teranishi, president and chief executive for Hawaiian Host; Brian Nishida, president of Maui Pineapple Co.; and Duane Kurisu, chairman and chief executive for AIO Group.
Nishida did not return calls seeking comment on Foremost's operations. Kurisu and Teranishi said they were no longer a part of the board and referred questions back to the company. Foremost declined to provide an updated list of directors and officers.
Meanwhile, the state will be left with just one milk processor when Foremost closes: Meadow Gold Dairies.
Hawai'i imports about half its milk now; if Meadow Gold were to cease production, the state would have to import all its milk.
That possibility loomed larger last week when union workers at Meadow Gold authorized a strike two days before their contract expired. The company and union representatives tentatively agreed to a new five-year contract on Friday, which the union will vote on this week.
Meanwhile, Sadeghi appears to have several ties to his former competitor:
• Sadeghi owes Meadow Gold an undisclosed amount for cows and equipment purchased as Meadow Gold closed several dairies in recent years.
• Sadeghi, who runs a dairy on the Big Island, sells its milk to Meadow Gold.
• Another Sadeghi company, Hawaii Intermodal Tank Transport, ships milk into Hawai'i for Meadow Gold.
Foremost spokeswoman Lo Tom said business dealings with Meadow Gold were not behind the decision to close Foremost.
Meadow Gold, through public relations agency Communications Pacific, said such business relationships are inevitable in a state as small as Hawai'i. Decisions to loan money to Sadeghi, buy milk from his dairy and ship milk via his company took place before his purchase of Foremost, Meadow Gold said.
The company added that it had no interest in acquiring any of Foremost's assets.
House Foods said it was aware of ties between Sadeghi and Meadow Gold, but was assured Meadow Gold had no financial involvement in the Foremost sale.
"When we sold it, we were told there wasn't any kind of Meadow Gold involvement," Roper said. "We were very concerned about the antitrust effect."
Ted Clause, who investigated the gasoline industry as head of the Hawai'i attorney general's antitrust unit, said the financial relationships between Sadeghi and Meadow Gold don't necessarily raise antitrust issues. Anti-trust laws essentially were created to prevent companies from colluding to fix prices or exercising market power to exclude competition.
"I don't find that too tremendously outrageous on the surface," the now-retired Clause said of connections between the two companies. "In this case, if Foremost is a failing business, I can understand."
Clause wonders, however, why an apparently sound investment in January turned sour by August.
"I might be curious as to why Bahman bought it in the first place," he said.
Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.
