Tully's bankruptcy case goes Green Mountain Coffee's way

A bankruptcy judge in Seattle on Friday finally settled a bankruptcy case involving a coffee-company based there with strong ties to Vermont's Green Mountain Coffee Roasters Inc. The ruling appears to give Green Mountain Coffee a small victory over Starbucks, its sometimes foe and sometimes friend. This time the case involves a third-party coffee company that now will be sold to a company led by actor Patrick Dempsey.
Tully's Coffee (TC Global Inc) was in bankruptcy court in Seattle with two different groups fighting over the beleaguered retailer. The Grey's Anatomy star was set to buy Tully's (through his investment firm Global Baristas) for $9.15 million. A higher, dual bid in the January 3 auction from Starbucks and Phillipines-based AgriNurture of $10.53 million was rejected by the court in part because of an objection by GMCR.
In a statement folowing the ruling, GMCR said: "We are aware that Global Baristas, LLC was confirmed in a US Bankruptcy court hearing as the buyer of TC Global, Inc, the company that owns and operates the Tully's Coffee® retail stores through a licensing agreement with Green Mountain Coffee Roasters, Inc (GMCR).
"We do not expect the sale of TC Global and its assets to have any significant impact on GMCR's Tully's Coffee® wholesale business, which was purchased by GMCR in 2009 along with ownership of the Tully's Coffee® brand. We cannot speculate on the future of the retail business.
"GMCR will continue to roast, package and sell Tully's Coffee® in bags, K-Cup® packs and Vue® packs in supermarkets, club and specialty stores, online at www.Tullys.com, www.GreenMountainCoffee.com and www.Keurig.com, and in offices and foodservice locations.
"We want to assure Tully's Coffee® fans that GMCR remains committed to the hand-crafted, slow-roasted artisanal approach to deliver the same full coffee flavor customers have come to know and expect from every cup of Tully's Coffee®."
Green Mountain bought the Tully's brand for $40.3 million in a deal that closed in March 2009. With it came the wholesale and coffee supply fulfillment contracts, but not the retail stores. Tully's continued to operate the chain independently and it was still owned by the same private stockholders.
In a filing, GMCR objected to the Starbucks/AgriNurture deal because it did not want a joint purchaser and would not assign the brand to them. This caused creditors and advisers to support the Global Baristas offer.
Tully stockholders, meanwhile, desired the higher bid. Tully's founder and minority stockholder Tom O'Keefe, who is no longer with the firm nor sits on its board, asked the court last Wednesday to re-open the bidding.
Tully's filed for bankruptcy last October (US Bankruptcy Court for Western Washington, Chapter 11 re-organization) as its cash position eroded. It also wanted to re-negotiate leases on its cafes. Tully's reported to the court that it had $5.9 million in assets and $3.7 million in liabilities, much of which was owed to GMCR for coffee. As part of its plan, Tully's would close some of its cafes and negotiate terms for the broken leases, much as Starbucks did when it closed some 600 hundred cafes starting in 2008 and paid upwards of $140 million to lease holders.
Just prior to its bankruptcy filing, Tully's had 135 cafes, about half of which were company owned in the Seattle area, with the other franchises located across the West. At least 17 company-owned cafes have been closed.
The 2009 deal with Green Mountain helped Tully's bail itself out of debt, but the company still could not turn a profit in the low-margin, upscale cafe business in direct competition with the much larger Starbucks, also based in Seattle.
Vermont Business Magazine. 1.14.2013