Is there anything in this world that can’t be made better by a healthy injection of private equity capital? I for one can’t think of a time it has done anything but improve a coffee company, much to then enrichment of the people that made the business so enticing to those with money in the first place. Anyway, a private equity firm is buying Philz Coffee and is cancelling all the employee-owned stock. Life’s so rad.
As reported by Mission Local, Philz Coffee, the San Francisco-based coffee chain that has since expanded to over 70 locations throughout California and into Chicago as well, is on the verge of being purchased by Los Angeles private equity firm Freeman Spogli & Co (which sounds like what Thomas Pynchon or David Foster Wallace or Martin Amis might name a private equity firm, but is very much real). According to stockholder documents obtained by Mission Local, the brand will be purchased for $145 million.
Terms of the deal also include “payouts or bonuses” for Philz board members, including “former CEO Phil Jaber and his son Jacob Jaber, representatives from investment firms Summit Partners and TPG Growth, and CEO Mahesh Sadarangani.”
Another term of the of the purchase is that “All Common Stock will be canceled for no consideration and all Options will be canceled and extinguished for no consideration,” per the document. Which makes those investments “effectively worthless.”
Unlike privileged stock, common stock offers little to no protection for investors, but Mission Local notes that the dissolution of common stock is a rarity in these sorts of transactions and generally only occurs due to liquidation or bankruptcy. It is also the type of stock that employees of Philz purchased while working (or thereafter) with the company. Particularly when employees worked more closely with the Jabers, before the first private equity investment in 2016, $45 million by TPG.
Of the former employees who help common stock that Mission Local spoke with, one invested over $10,000 when they were “personally offered stock options by Phil Jaber and Jacob Jaber when they first became available to employees in 2013, and later, in 2015, purchased stock at a discounted rate.” There were only three locations at the time.
Another former employee, who was laid off by the company, was urged by CEO Sadarangani not to exercise his stock options, which again, are now worthless. “I always assumed they would do the right thing,” he tells Mission Local.
The official sale has not yet been finalized and is expected to go through August 8th, and stockholders have until today, August 5th, to “request an appraisal of their shares,” which is a court-supervised valuation of their stock, generally made during the sale of a company or a merger when the stockholder believes the value they are being offered for their shares to be unfair or below what it is worth.
I dunno, it’s just nice to see the good guys win for a change. All these workers that believed in a company so much they invested their hard-earned cash, they’ve had it too good for too long. It’s high time a bunch of private equity guys and CEOs finally came out on top. Because really, isn’t that what specialty coffee is all about?
Zac Cadwalader is the managing editor at Sprudge Media Network and a staff writer based in Dallas. Read more Zac Cadwalader on Sprudge.
