Green Mountain Coffee Roasters, Inc. (NASDAQ: GMCR – News) acquired the Tully’s coffee brand and wholesale business from Tully’s Coffee Corporation for a cash purchase price of $40.3 million yesterday. Tully’s wholesale business division distributes handcrafted coffees and related products via office coffee services, foodservice distributors, and more than 5,000 supermarkets located primarily in the western states.

Tully’s Coffee Corporation will remain an independent company, owned by its existing shareholders and managed by its existing management team, with a focus on its retail and international division assets. Tully’s retail business will operate under license and supply agreements with GMCR. This arrangement is intended to create consistent representation of the Tully’s brand while providing high quality gourmet coffee to all customers drinking Tully’s branded coffee.

Following the completion of this transaction, GMCR expects to integrate about 70 employees from Tully’s wholesale business into its Green Mountain Coffee segment. GMCR will sublease from Tully’s the portion of Tully’s manufacturing and distribution center in Seattle that is devoted to the wholesale business.

Green Mountain Coffee intends to finance the purchase through its existing $225 million senior revolving credit facility. This transaction is subject to customary closing conditions, including approval by Tully’s shareholders, and is expected to close by the end of calendar 2008. Tom T. O’Keefe, Chairman of the Board of Tully’s, representing 10.4 percent of the outstanding voting shares and 20.1 percent of the common stock outstanding of Tully’s, has agreed to vote in favor of the transaction.

Green Mountain Coffee anticipates the acquisition will be neutral to modestly accretive to its earnings per share for the first twelve months of ownership following the closing of the transaction, and accretive thereafter. Taking into account the acquisition, the Company is not changing its previously issued estimates for fully diluted GAAP earnings per share in the range of $1.20 to $1.30 per share for fiscal year 2009.

Lawrence J. Blanford, President and CEO of Green Mountain Coffee Roasters, says, “Tully’s will provide GMCR with a complementary West Coast brand and business infrastructure, furthering our plans to establish the Company, and its proprietary Keurig Single-Cup Brewing system, throughout North America.”

Blanford continues, “Tully’s wholesale sales over the past 12 months ended June 30, 2008 of $30.4 million are up about 35 percent driven by growing supermarket distribution to 5,000 doors in 20 states, primarily in the western part of the nation, and K-Cup portion pack sales. This complements our own business in these channels, which is currently largely on the East Coast. Enhanced distribution of Tully’s K-Cup portion packs in supermarkets and office coffee services also presents exciting opportunities. Tully’s has been a Keurig licensee since November, 2005. With this acquisition, we intend to further leverage the brand’s potential and aggressively grow Tully’s wholesale business.”