Interest in the assets of the Tully’s coffeehouse chain is heating up, with new bidders emerging just weeks before a Jan. 3 bankruptcy auction.
Baristas Coffee Company Inc., the Seattle-based operator of a chain of drive-thru “sexpresso” stands manned by attractive female baristas, said Tuesday it is making a $10.4-million bid for the assets of TC Global Inc., which filed for Chapter 11 bankruptcy in October.
Also unofficially throwing a hat in the ring is Tully’s founder Tom “Tully” O’Keefe, who stepped down as chairman of the chain in 2010. O’Keefe, who remains a shareholder, said he has been contacted by other potential buyers that have also expressed interest.
Seattle-based TC Global Inc., which operates 47 coffeehouse locations under the Tully’s brand, with another 83 licensed or franchised, last month announced an asset purchase agreement with finance group Kachi Partners, which became the stalking-horse bidder in a bankruptcy auction scheduled for Jan. 3.
Under the deal, TC Global’s assets would be acquired by Jonah Retail Holdings LLC, an entity backed by Boulder, Colo.-based finance group Kachi Partners, for $4.3 million, including $1.25 million in cash. The deal includes a $200,000 “break up” fee if a higher bidder emerges.
The agreement and the bankruptcy do not impact the wholesale and online Tully’s Coffee business, which was purchased by Green Mountain Coffee Roasters Inc. in 2009. Complicating the auction, however, is a non-compete agreement with Green Mountain that could hinder a potential buyer that has a significant interest in a competing coffee brand, like Baristas.
Barry Henthorn, chief executive of Baristas, said he’s not concerned about the non-compete agreement because the bid for Tully’s assets is being made by a separate entity called Baristas Acquisition Partners Inc., which is backed by existing Tully’s and Baristas shareholders, other executives from the coffee industry, financial analysts, investment bankers, professional athletes and other investors.
In earlier court filings, the offer by Baristas Acquisition Partners was described as totaling $10.4 million in cash with assumed liabilities. Part of the offer would include $4.1 million in negotiable securities for secured and unsecured creditors, and $3.5 million in negotiable securities for TC Global shareholders.
Henthorn said Tuesday that the filing was made before the court had specified how bids should come in, and it will likely be revised, although, he added, “It will not be less than that.”
If the court accepts Baristas Acquisition Partners' final bid, Tully’s would be operated as a wholly-owned subsidiary of Baristas Coffee Company Inc., or BCCI. Under the proposed deal, Baristas said it intends to continue to maintain and operate the locations with existing employees under the Tully’s brand.
By combining management and supply chain resources, Henthorn projected that the combined entities will be more profitable. Operations from existing locations alone will generate more than $25 million in revenue and about $2 million in profit next year, he said.
The acquisition would also allow further distribution of other Barista products, such as a new line of ice cream the company is poised to debut, and other products in development.
Currently, the 11 locations of Baristas are all drive-thru locations. The company operates in Washington state, as well as Arizona, Texas, Florida and Montana. Henthorn said another 16 locations are expected to open before the end of the second quarter next year.
Meanwhile, Tully’s founder O’Keefe said he is also working on a bid, though he noted that other bidders have also contacted him with the hope of getting him involved.
O’Keefe, a real estate developer, founded Tully’s in 1992. Though retired from the business for three years, he said, “It deeply saddens me that it has come to this.”
O’Keefe may also be one of few potential buyers that understand the complex relationship Tully’s has with Green Mountain, which owns the brand’s wholesale business in North America, supplies the coffee used by Tully’s coffeehouses, and owns the rights to the Tully’s brand name, although the TC Global licenses it back for $1 per year in perpetuity.
“Whomever the new buyer is, they’re going to want to fully understand what they’re buying,” O’Keefe said.
The deadline for bids in the bankruptcy auction is Dec. 27. A hearing on the results of the auction is scheduled for Jan. 11, according to court filings.