INTERVIEW WITH ORTH PRESIDENT (PART II)
Jolly: Bob, are there any ORTH investors that are negative to this merger? If
so why? And What do you tell them?
Mr. Schulhof: So far I have gotten nothing but congratulations, but I would
imagine that someone would get out their calculator and figure that $1.8M
shares of PEN at $2.00 means that we sold the company for $3.6M plus $1.4M in
assumed debt, which is below book value, and what we paid for the practices.
If that were $3.6M in cash I never would have done it, but we believe those
$1.8M shares of PEN are every bit as undervalued as our 5M shares of ORTH are
and it is a good swap. Both of us have a price to sales of under .5 and a price
per dentist of under $200,000, the greatest bargains in a bargain industry.
Jolly: What is the difference in ORTH & PEN compared to other Dental Management
Companies?
Mr. Schulhof: The first dental management companies were what you would call
commercial operations- set up an office in a shopping mall, advertise low fees
on TV and hire a dentist to work for you on salary. This is a nice business but
it ignores the fact that there is another huge market of 135,000 dentists, most
of whom are independent do not want to be someone else's employee, but hate
doing management.
Another big consideration is that the high tech cosmetic sector of dentistry
passed the pain sector back in 1995 and the quality side of the market may be
the fastest growing as well as the most profitable.
Pentegra, in March of 1998 was the first high quality - owner model dental
management company to go public. Because of market conditions it looks like it
will be the only one. While they now have about 100 dentists, if they just
captured 1% of the available market in the next five years that would be
compound growth of over 100% a year. And a lot safer than the Internet.
There were actually a number of other owner model management companies that
were preparing to go public that are still born and ripe for a pick up. One of
these was Liberty Dental. Pentegra acquired Liberty's management and the right
to sign it's dentists. It is one of the reasons that Pentegra has grown from
$37M last March to $60M one year later and $70M with our merger. Management
expects the Liberty Dentists to take PEN to $90M in practice sales. There are
other "Liberties" that will see PEN as their best avenue to success. So the
growth doesn't have to occur one at a time.
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