Starbucks Wants The Tully's Auction Restarted


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Patrick Dempsey’s bid for the Tully’s coffee chain will come under heavy scrutiny when a U.S. Bankruptcy Court judge holds a hearing this afternoon to approve the sale. Both shareholders and other bidders are objecting to Global Baristas’ $9.15 million purchase offer, including Starbucks, which wants a do-over.

(UPDATE: the judge ended up siding with Dempsey, who got the Tully's chain.)

The auction was held more than a week ago. It lasted nearly 12 hours. Global Baristas was targeting the full, 47-unit chain. Starbucks wanted the 25 best units, 12 of which are at Boeing offices. A subsidiary of the Boulder, Colorado private equity group Kachi Partners, among others, wanted the assets Starbucks didn’t want. As we reported this week, the owner of the Tully’s brand name, Green Mountain Coffee Roasters, said it would not approve any partial bids for the chain. Green Mountain feared that, with Starbucks taking the best locations, it would leave behind a weak chain in its wake.

While Starbucks’ bid didn’t need Green Mountain’s approval, the others did because of the Vermont company’s ownership of the brand—effectively killing the Starbucks’ efforts. The auction was stopped. The chain was awarded to Dempsey, who then made his infamous “green monster” tweet.

Scott Pearson, CEO of Tully’s, said the “most significant factor” leading to the selection of Dempsey’s group was its ability to close the deal this month—though the Starbucks-led bids were “significantly discounted” because of Green Mountain’s objection.

Starbucks bid $6.56 million for those 25 sites. In an objection to the Dempsey bid, Tully’s founder Tom O’Keefe, who is still the company’s largest shareholder, said that Starbucks’ combined bid with Tully’s Asian-Pacific franchisee Agrinurture would have been more than $10.5 million. An official with Neon T Coffee Shops, the Kachi subsidiary, said that its combined bid with Starbucks could have been “at least $1.4 million higher” than the Dempsey bid. Indeed, according to Starbucks’ filing, even Dempsey’s group had bid on the non-Starbucks sites—indicating that, had the auction continued, the combined bid for the company could have gone considerably higher.

As such, Starbucks and others want the auction restarted, saying it would more likely achieve a higher bid.

Starbucks also takes issue with Tully’s assertion that Global Baristas would retain the company’s employees—it says both its bid and the one for Global Baristas have the same terms for employee treatment. This also seems to be a shot at Dempsey, whose public pronouncements in the aftermath of the auction of been pro-employee and pro-Seattle. “Seattle has been our hometown for more than 40 years, we employ more than 7,000 people and thousands more across the Pacific Northwest; we also offer more competitive employee benefits than Tully’s employees currently have available to them.”

 

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