It is highly unlikely that Wrigley shorted GUMM the day of the announcement. They didn't even know if the deal would be approved by Gum Tech Shareholders at that time, much less the other approvals that would be necessary. Do you really think that a conservatively managed company like Wrigley, which has never even purchased another company, would short shares of a low float, low average volume company, as a hedge against some unknown event in the future? And what if the deal wasn't approved and Wrigley got stuck in a big unhedged short position in GUMM?! Sure, Mark that makes a lot of sense! Obviously this is speculation on my part, but it makes more sense than your speculation that Wrigley hedged their position by shorting stock the day of the announcement.
Last year's loss on continuing operations isn't as important as the growth in sales of Zicam at the retail level. This indicates that the product is being accepted by consumers. If the growth continues at even the same rate, Gel Tech will be profitable. Even though the launch of Zicam has to be considered a success, their market penetration to date is small (< 1%) and there is plenty of room for growth. Based on historical data, every $5 million in sales above the break even point adds about $0.28 to Gum Tech's earnings. Gum Tech has plenty of earnings leverage here, and given the low market penetration and trend in sales, this is a big risk to shorts despite your ignorance. Not many companies make a profit on new products in the year they are launched because sales are low relative to advertising expense while they ramp up. Shorts should be more concerned about the trend in sales and high gross profit margin of Zicam than last year's loss, which was due entirely to advertising.
As you noted, Gum Tech expounded on the royalty agreement in the proxy. Specifically, they said that Wrigley will evaluate three Gum Tech products and that Gum Tech will receive royalties in the amount of 5% for three years if Wrigley markets them. You say this isn't a risk to shorts, but I beg to differ. Even though the time is capped, Wrigley can sell a lot of gum in three years should they choose to market even one of those three products. Do you think that $50 million in annual sales is a fair estimate for a product that Wrigley decides to market? I have heard that they wouldn't even try to commercialize a product unless they expect $80 million to $100 million in annual sales. If they only do $50 million on each of three products, the total revenue would be $150 million, and Gum Tech's royalty would be $7,500,000 annually, or $0.75 per share. Sure this is speculative, but so is the short's hope that Wrigley won't market even one of the products, or that Gum Tech won't receive any royalty income from Wrigley. There's no doubt in my mind that Gum Tech already has three NEW products ready to go.
You opine that there's nothing in the proxy that should concern shorts. I opine that there's nothing in the proxy that should concern longs. In fact, this is a sweet deal for Gum Tech and no amount of spin from you or others will change that. Wrigley is offering to pay more for the losing part of Gum Tech's business than the idiotic "valuation" that some shorts put on the entire company. It goes to show you that these moronic shorts don't have a clue how much the gum operations are worth, and it follows that they don't have a clue how much Gel Tech, the joint venture with Swedish Match, or the rest of Gum Tech are worth. |
