| I agree that $10 million isn't pocket change, but the value of the joint venture with Swedish Match has very little to do with the amount of start up capital. The value of the joint venture has more to do with future sales and profitability, both of which are hard to estimate at this time. It is clear from reading company press releases, SEC filings, and interviews with Swedish Match management that they are targeting both the nicotine cessation market and tobacco replacement market. The former was worth over $600 million last year and is projected to grow to $1.5 billion by 2005. The latter is a completely new market, but the size of the tobacco market in the US alone last year was over $45 billion. Even if only a very small percentage of smokers use nicotine gum to replace tobacco, Gum Tech will reap huge benefits. Swedish Match has made it clear that the joint venture with Gum Tech is important to the future growth of Swedish Match, and they need revenue and profits to replace the cigarette division that they sold last year. If shorts want to bet against this deal, so be it, but I think that they will eventually lose in a big way. My 2001 earnings estimate of $1.11 per share doesn't include any contribution from the joint venture with Swedish Match, but this venture will no doubt add value to Gum Tech's stock. IMO, the joint venture with Swedish Match is worth more than the current stock price. I don't buy the argument that this business segment is speculative. Swedish Match is a large, well established company with well known brand names, and nicotine cessation gum has a well established growth path. Ditto for dental gum with P&G. Zicam is speculative only because Gum Tech is trying to market it on their own. However, I believe that they will eventually join up with a larger company to market it, and that's when international distribution will begin. |
