Farm Girl Makes Good: Kathleen King Sells Tate’s for $100 Million

Kathleen King of Southampton sold a majority stake in Tate’s Bake Shop for a reported $100 million last week. The buyer is Riverside Company, a private equity firm with offices in Manhattan and Cleveland. A partner in that firm, Alan Peyrat, confirmed the sale to a reporter for Newsday last Wednesday, saying the money would come from their $350 million Riverside Micro-Cap Fund III. He said Kathleen King would stay on running product development and quality control.

The sale of Tate’s is a triumph for Kathleen. It is also a triumph for the people of this community, because during a very tough period in her life, when she had become a minority owner in her earlier Kathleen’s Bake Shop company and was then locked out by her partners, the people in this town rallied to her support, offering encouragement and solace, even public protests. She could have given up. But she didn’t. Now, 15 years later, there is this.

Kathleen King was born and raised on her family’s North Sea Farm. The farm faces out on Noyac Road and has a farm stand, and when Kathleen was 11, after helping milk cows and feed chickens, she’d stand out there with her mom and dad to sell, among other things, chocolate chip cookies, which she had baked with her mother’s help in their kitchen.

After college, Kathleen bought a shuttered bakeshop on North Sea Road, and there began to sell her homemade cookies to the public, either individually or in packs of six. The cookies were thin and crispy and as good as it gets.

I first met Kathleen when I was walking around town with copies of Dan’s Papers and sales contracts under my arm, selling ads. Here was a new business. The place smelled wonderful. Staff had her come out from the back, where she had been in a white apron, baking. She was 21, fresh faced and happy. Her name was on the labels of the cookies. My name was on the masthead of the paper. She bought an ad. And I bought a bag of six cookies, which, as soon as I got back to my car, I ate in its entirety. They were so good. Couldn’t help it. This was in 1980.

Soon, Kathleen’s Cookies became an institution. You could buy them at her shop or at an ever-expanding group of grocery stores and farm stands in this community.

In 1999, though, Kathleen proceeded into what others might call a midlife crisis. She loved her family and she loved what she did. The business was a great success. But maybe she should step back and do something else with her life. The accountant doing her books said he would like to buy into the business. And he had a brother who also would like to join up. They would take over two-thirds of the business. They’d take the product national. She could still be the CEO and they could run the business end. Kathleen signed on.

The agreement worked well at first. For the national effort, the brothers bought a facility in Virginia. The bakeshop on North Sea Road remained, but the business end was now far from where Kathleen could have direct control. Pretty soon there were arguments. For one thing, the cookies coming out of Virginia clearly were not being made with the quality she wanted. In reply, the brothers told her for a national product they’d need the cheaper ingredients and who could tell them apart? Kathleen said she could, and she did one blind test after another.

More alarmingly, the brothers now stopped paying some of the bills. She learned about it by accident, when suppliers were calling her to ask for their money. When she asked the brothers, they told her this was their problem, not hers. They were the majority owners; just tell them to call us.

Things got worse. Now there were many more vendors demanding their money. And so Kathleen decided to do something about it. The bakeshop in Southampton was still selling retail. Customers were coming in all the time, paying cash. Kathleen now began to pay the vendors with this cash. And she told the brothers. But they, outraged, accused her of stealing. If she kept it up, they would fire her, they told her.

At this point, I had a long talk with Kathleen. It appeared they were squeezing her out. What should she do? Both of us thought the brothers were now buying the business from the profits of the business, a classic trick.

“This is a terrible situation,” she said.

“You either fight or flee,” I said. “If it’s fight, you’ll need a good lawyer.”

Kathleen chose to fight. It was a huge fight. Half a dozen lawsuits went back and forth. Of course, one day the brothers simply fired her and changed the locks of the bakeshop on North Sea Road.

At this point, I learned from Kathleen that although she owned the property, they had the lease. It had also turned out that there was a clause in the contract that said they could use the equity of the business to buy it. The brothers, it seemed, had her where they wanted her.

It was at this point that the town rallied around Kathleen. People carried signs in front of the shop reading NO KATHLEEN, NO COOKIES. People called to console her. And Kathleen, who was raised on a farm, knew how to stay positive and fight.

It went to court. There, a judge offered both sides a compromise. The brothers could keep the name Kathleen’s Bake Shop; they could continue to create their national brand. Kathleen would get the deed to her bakeshop back. She could bake there. But she could never bake cookies called Kathleen’s Cookies.

And then there was this shocker. The brothers had run the company into $600,000 of debt. The judge said Kathleen would have to take on one-third of it: $200,000.

“I just want to run my bakeshop,” Kathleen told me. She agreed to all this. She remortgaged the bakeshop. She started over.

In the year 2000, Kathleen printed new labels and began once again to make her delicious cookies, now called Tate’s Bake Shop. Tate was what people called her father. People now had a choice. You could get Tate’s. And you could get Kathleen’s. Nobody, around here anyway, would buy Kathleen’s.

So who won?

Here it is, 14 years later. Kathleen’s Bake Shop has gone out of business. And Tate’s cookies are now sold in more than 40 states and all around the world in such places as Hong Kong and St. Barts. And you can still buy them directly from Kathleen at her shop on North Sea Road. How does she do it? Kathleen has 200 employees baking and selling 2 to 3 million cookies a week at a former schoolhouse in East Moriches she bought. And then there is this: In 2011, Consumer Reports surveyed all the chocolate chip cookie brands in the country to find the best. Tate’s won.

Riverside’s Alan Peyrat first tasted the thin, crispy cookies when he was taking his kids surfing in Huntington Beach, California. Then the idea of buying Tate’s came up.

“My family loved [the cookies],” he told Newsday. “I was already predisposed to the company [when an investment proposal] landed on my desk.”

Yum.