Will 'McDreamy' beat Starbucks?

Actor Patrick Dempsey of TV's 'Grey's Anatomy' is locked in a fierce fight with the coffee giant for the Tully's chain. A decision on who gets Tully's may come Friday.

By Charley Blaine Jan 10, 2013 3:17PM
© Rob Kim/FilmMagic/Getty Images Out in Seattle, there's a battle to save a company going on between the actor Patrick Dempsey, sometimes referred to as "McDreamy," and coffee giant Starbucks (SBUX).

The battle is for Tully's, a smallish coffee-house chain that's some 20 years old and currently operating under Chapter 11 bankruptcy protection.

A week ago, bidders made offers for Tully's, and Dempsey, who plays Dr. Derek Shepherd on ABC's "Grey's Anatomy," thought his Global Baristas LLC had won Tully's for $9.5 million.

On Twitter, he crowed: "We met the green monster, looked her in the eye, and...SHE BLINKED! We got it! Thank you Seattle!"

The green monster being Starbucks.

Maybe McDreamy hasn't won yet. Starbucks and AgriNurture, which owns Tully's franchises in Asia, are asking a bankruptcy judge in Seattle to take their combined $10.6 million bid instead. A hearing will be held in Seattle on Friday.

Starbucks would take 25 Tully's stores and convert them to Starbucks stores. AgriNurture would take the 22 remaining stores and retain its Asian business and continue to use the Tully's name.

There are also 83 franchised or licensed locations in Arizona, California, Colorado, Idaho, Montana, Oregon and Washington as well as the Asia franchises.

Tully's has had a long and, let's be frank, painful life. Founded in 1992, Tully's struggled to turn a profit even after the 2009 sale of its wholesale business to Green Mountain Coffee Roasters (GMCR) for $40 million. That deal allowed Tully's to wipe $19.3 million in debt off its books and distribute nearly $6 million to shareholders.

But it couldn't compete efficiently against Starbucks.

In 2010 and 2011, the company tried to right-size its business through aggressive cost cutting. Then it decided it would need to close a substantial number of stores to become profitable. It filed for bankruptcy protection in October and shut down 19 unprofitable stores.

The coffee shop business is brutal because of the competition from Starbucks and competitors such as Panera Bread (PNRA) and the probability that Dunkin Donuts, owned by Dunkin' Brands (DNKN), would begin expanding rapidly in the West.

Caribou Coffee (CBOU), a Minneapolis chain, recently agreed to be acquired by Joh. A Benckiser Group, a German-Austrian company, for $16 a share or $340 million. Benckiser had previously agreed to buy Peet's Coffee, a California company.

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