I didn't miss the other two links. You must have missed my comment that you can't value GUMM based on what they paid for the remaining 40% of Gel Tech. This is getting redundant, but the value that a company pays for an asset can be more, less, or exactly equal to what it is really worth. You also apparently give zero value to Gum Tech's nicotine assets and potential royalties from Wrigley, but the market doesn't give zero value to these assets. Also as has been posted over and over again, Gum Tech has held the right to purchase the remaining 40% of Gel Tech since the day Gel Tech LLC formed. Of course when Gum Tech exercises their right to purchase the remaining 40%, you call it "bailing" as if Zensano had a choice in the matter.
Your assertion that GUMM has a net book value of about $10 million is wrong. The book value as of the latest balance sheet (Sep 2001) is $28.5 million. While the book value is completely irrelevant to a company's market value, your number is off by a factor of almost three. If your "net book value" is based on a proforma after Gum Tech pays off Zensano for Gel Tech, you seem to have neglected that $11 million will be paid out over the next two years (not four years as you stated). If you want to anticipate what Gum Tech's book value will be in two years, you have to project the increase in book value from operations over the next two years. Your calculation assumes that the increase in book value will be zero.
In addition, if Gum Tech doesn't exercise their right to buy the remaining 40% of Gel Tech, they would have to continue "paying" Zensano 40% of Gel Tech's revenues and profits. If sales equal $27.5 million over the next two years, Gum Tech would have "paid" Zensano $11 million anyway. Is it better to own 100% of an asset or 60% of an asset for the same amount of money? For every dollar in sales over $27.5 million, Gum Tech will keep 40% more. This doesn't stop after two years. It goes on for as long as Gum Tech sells the two Zicam products.
BTW, Dr. Davidson, Dr. Hensley, and Mr. Landau, all Gel Tech employees, each held options to purchase 47,500 shares of GUMM. If I'm not mistaken, they already exercised these options and hold the stock. I believe that they are considered insiders and have to report any sales. They have not reported any sales of GUMM stock, and this is the best gauge of whether they have bailed. |
