Shareholders OK Tully's reverse split

Tully's Coffee shareholders agreed Wednesday to exchange every eight shares they own for one new share, a move that makes each share worth more.

Management hopes the higher value will make Tully's planned public offering more attractive to institutional investors. Many large investors do not buy stocks valued below $10 a share, which is the bottom of the range Tully's management has targeted for its offering.

The 1-for-8 reverse split should put Tully's shares in that range, founder and Chairman Tom O'Keefe explained to a group of 200-some stockholders at the Washington State Convention and Trade Center in downtown Seattle.

But the market for coffee stocks has sputtered lately, with Starbucks regularly hitting new 52-week lows and Peet's Coffee & Tea shares slogging along near the bottom of their 52-week range.

That could hurt the offering price or delay Tully's offering, O'Keefe said. Executives plan to decide how quickly to proceed with the offering after they release annual earnings next week.

Another way for Tully's investors to get money for their shares would be through a sale of the company, which has more than 125 stores.

O'Keefe said the Seattle company gets calls regularly about selling, but most are not serious offers. Still, he said, Tully's looks into each inquiry.

"There isn't one individual at this company who has the kind of ego that says, 'I don't care what they pay us, I'm going to run this company forever,' " he said.

Some shareholders at Wednesday's special meeting were dismayed that new investors in a public offering might end up paying less for their stake in Tully's than people who bought shares nearly a decade ago.

Robert Davis, of Seattle, who bought 15,000 shares for less than $2 apiece in 1999, views the 1-for-8 deal as a serious devaluation of his ownership in Tully's.

"I'm in favor of an IPO, and I'd even accept a 2-to-1 [reverse] split," he said.

Others said they expect shares to appreciate after the offering, making their investments worthwhile in the long run. Two shareholders who praised Tully's management during a question-and-answer session were answered with applause.

KeyBanc Capital Markets in Cleveland is Tully's lead manager for the offering, and Mellon Investor Services, which has a Seattle office, is its stock transfer agent.

Nearly 66 percent of Tully's common and preferred shareholders voted, with 96 percent favoring the reverse stock split and the elimination of a requirement that the offering have a minimum price per share.

O'Keefe said that the company sent letters a couple weeks ago asking shareholders to vote, despite the fact that more than 90 percent of the votes cast at that point approved the reverse split. Tully's has had trouble reaching a quorum at its past two annual meetings, he said, and did not want to repeat the voting process because too few shares were voted.

Tully's has spent nearly $1 million getting to this point in the public-offering process, he said.

Executives barely discussed Tully's coffee business during the hourlong meeting, although O'Keefe said the convention center now will sell Tully's coffee exclusively. The three-year deal includes the replacement in August of the center's Starbucks with a Tully's shop.

He also said more business is coming from a "very large software company" in the area, but declined to elaborate.

On July 8, Tully's will introduce a special "Dreamliner Blend" at the five shops it operates at Boeing's Everett and Renton locations.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com