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Imperial Sugar: A Sweet Spot in a Sour Economy

Furthermore, IPSU announced just this month the creation of Natural Sweet Ventures LLC, a new and exclusive joint venture with Pure Circle Limited to develop a specialty product line combining the natural benefits of both sugar and stevia. Product development will focus on delivering desired sweetness levels with fewer calories and natural ingredients.

Natural Sweet Ventures will work with customers in the food and beverage sectors. Since December 2008, when the FDA approved use of Reb A (an active ingredient of stevia) in U.S. food and beverages, the domestic stevia market has grown to about $100 million in sales for 2009 and is estimated to be a $700 million to $2 billion annual market in the coming years. To illustrate the enthusiasm for stevia, Pepsi announced at its investor conference this week that it would be putting "unprecedented resources" toward reformulating its beverages with natural, no-calorie sweeteners such as stevia.

Despite the positive fundamentals facing the company, IPSU's shares remain materially undervalued for a variety of reasons, including litigation overhang, lack of Street coverage and a misunderstood story and trading liquidity discount.

The biggest overhang on the company's share price is pending litigation from an explosion and fire in February 2008 at its sugar refinery in Port Wentworth, Ga., that left many employees injured and some dead. Production at the refinery, which comprised about 60% of IPSU's capacity, was suspended after the accident.

The reconstruction project has largely been completed and operational capacity nearly restored. The company is party to a number of claims and lawsuits and believes that its workers compensation and liability insurance coverage of $100 million is adequate to provide for these damages.

Trial dates for two of the 45 lawsuits have been set for May 2010 and there is a likelihood of a settlement before going to trial. A settlement announcement would almost certainly increase shareholder value materially.

As a small-cap with a sub $200 million enterprise value, IPSU receives no major Street coverage from full service brokerages; instead, IPSU is followed only by two independent research firms. The overwhelming investor sentiment is that IPSU is substantially undervalued and should trade, at a minimum, above $20 per share.
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