TC Global Inc., parent to the Tully’s coffee shop brand, said on Wednesday that it has signed an asset purchase agreement with finance group Kachi Partners, which would become the stalking horse bidder in a bankruptcy auction of the coffeehouse chain later this year.
Under the deal, TC Global’s assets would be acquired by Jonah Retail Holdings LLC, an entity backed by Boulder, Colo.-based Kachi Partners, and the chain would continue operation under the Tully’s brand. On its website, Kachi Partners describes itself as an “entrepreneurial finance group” that focuses on “control investments in distressed middle market companies and other special situations.”
Court filings on Monday indicate that TC Global’s proposed purchase price for Tully's is $4.3 million, including $1.25 million in cash. The deal includes a $200,000 “break up” fee if a higher bidder emerges.
The asset purchase 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. TC Global said it will continue to source coffee for its retail stores under the existing supply and licensing agreements with Green Mountain.
In court documents, Scott Pearson, TC Global’s president and chief executive, argued in support of the deal with Kachi, saying it would allow existing stores to continue operation without disruption and that it would avoid the liquidation sale of assets at severely depressed, “fire-sale prices.”
Seattle-based TC Global Inc. filed Chapter 11 bankruptcy on Oct. 10 in the U.S. Bankruptcy Court for Western Washington. At the time, the company said it had hired Deloitte Corporate Restructuring Group to explore strategic options, including the possibility of a sale.
In a statement Wednesday, Pearson said, “With this agreement in place with Kachi, we believe the business is positioned to emerge from this process in early 2013 and that we will be a much stronger company as a result.”
Over the past few months, Tully’s has closed 19 underperforming locations. The chain currently includes 47 company-owned coffeehouses. Another 83 locations are licensed or franchised under the Tully’s brand.
Since the store closures, TC Global said same-store sales have increased and profitability has improved but did not give further details. The company also said Wednesday that it has continued to focus on reducing costs through management realignment and consolidation of overhead at all levels.
A hearing on the bidding process in the bankruptcy case is scheduled for Dec. 7. As of press time, no date has been set for the auction.
This article has been updated to reflect the following addition:
Correction: Nov. 29, 2012 An earlier version of this story did not make clear that the Tully’s Coffee wholesale and online business owned by Green Mountain Coffee Roasters Inc. is not impacted by the proposed sale or the bankruptcy. The asset purchase agreement signed by TC Global Inc. involves only the Tully’s coffee shop chain.