In the case of two Canadian trust funds – funds holding a galleon’s worth of bullion in gold and silver bars – a failed proxy vote by one disgruntled institutional unitholder quickly swelled into one of the most unusual, complex and lengthy hostile take-over attempts in recent Canadian history.
It unleashed rounds of litigation at securities commissions and courts in Alberta and Ontario, culminating in Sprott Asset Management LP’s successful $1.2-billion unsolicited take-over of Central GoldTrust (CGT) on January 15, 2016. It was the first take-over of its kind in Canadian history. But Sprott’s management had their sights set on two targets, and one managed to escape — Silver Bullion Trust (SBT), though it was much smaller than CGT, the golden prize eventually captured. This was after a hearty legal defence by the two targets’ external counsel, Bennett Jones LLP.
The deal had all the makings of a legal thriller, with its drama, deft legal gamesmanship and its implications for Canadian trusts in any future unsolicited transactions. “I have been involved in a lot of fairly hostile transactions. Some very acrimonious ones,” says John Ciardullo, the Toronto partner who heads Stikeman Elliott LLP’s corporate department. As Sprott’s lead external lawyer, he, along with Arthur Einav – the company’s General Counsel and Corporate Secretary – spent much of 2015 leading Sprott’s legal efforts to win over unitholders at Central Gold Trust and their bullion. “This one took acrimony to a new level,” he says.
Sprott first announced intentions to go after CGT and SBT on April 23, 2015. It was up against a strong customer seller in Ontario’s Spicer family, which founded the targeted trusts. And the Spicers had hired a team at Bennett Jones, led by Toronto partner Robert Staley, Head of Shareholder Activism and Critical Situations at the firm.
Spicer
Every mutiny is sparked by stewing dissatisfaction leading to a critical incident. In the case of the Bounty in 1789, an uprising was seeded when ship captain Lieutenant William Bligh chided his carpenter for cutting poor quality billets of wood. In the Spicers’ case, an institutional unitholder chided the poor performance and management of both CGT and SBT and wanted trustees to walk the plank.
For years, the Spicer family and their directors ran and controlled the two physical bullion trusts founded through parent company Central Fund of Canada Ltd. CFOC was founded by family patriarch Philip M. Spicer in 1961. In 2003 his son Stefan Spicer founded CGT, and in 2009, SBT. CGT and SBT operated from a brick manse on a leafy street in Ancaster, Ontario.
The heavier of CFOC’s two trust funds, with about $1.2 billion in assets, was CGT. SBT held about $50 million. Both trusts traded on the TSX and NYSE, with unitholders consisting mainly of mom-and-pop retail investors. But it was an institutional investor, Polar Securities Inc., which first attempted a mutiny for the bullion.
Polar
Polar, a Toronto hedge fund, had bought stakes in the Spicer treasure chests in 2013 – 10.02 per cent in SBT, 4.4 per cent in CGT – but the firm had quickly soured on management’s handling of the funds. Compared to peers, SBT and CGT units consistently traded at a troubling discount to the net asset value (NAV) of the gold and silver in each fund. In a press release at the time, Polar complained the average discount to NAV for SBT was 7.4 per cent and 5.7 per cent for CGT.
On February 3, 2015, Polar pulled out its rapier with a requisition for a unitholder meeting. Polar sought to change how unitholders could redeem units. It wanted SBT and CGT to amend their Declarations of Trust (DoT) dictating how management should administer the assets held on behalf of unitholders. It also wanted to remove three directors on the board of SBT, where the hedge fund’s sizable stake gave it clout, and replace them with its own representatives.
CFOC put together a special committee of trustees for its three entities. With the help of Staley’s Bennett Jones team it fended off Polar’s proxy contests three months after they began.
The Scent of a Take-over
Knowing the Polar proxy had dripped blood in the water, Spicer trustees decided to institute another safeguard. They passed a new advance notice rule for their DoT, hoping it would stick in the craw of any other hostiles that might emerge.
Sure enough, Sprott was quietly watching things unfold as Polar’s sunken proxy nevertheless exposed opportunity. “We saw what was going on in February and we started having increased discussions into late February and into March” about making a bid, recounts Einav.
It wasn’t hard for Sprott to sniff out latent dissent among the Spicers’ investors. “We actually had unitholders from Central Gold Trust calling us and asking us when and if we would enter the fray,” says Einav. “We determined it would be on strategy for us to make an offer for” CGT. Sprott, says Einav, had long strived to be Canada’s leader in exchange-traded precious metals. Nabbing the Spicers’ trusts would have significantly advanced Sprott’s standing in the physical bullion trust sector, giving it the opportunity to manage the funds better.
On May 27, 2015, after creating Asset Management Gold Bid LP and Sprott Asset Management Silver Bid LP as affiliates, Sprott launched concurrent hostile take-over bids for CGT and SBT.
In exchange for all outstanding units of those two trusts, Sprott offered units of Sprott Physical Gold Trust and Sprott Physical Silver Trust on a NAV-for-NAV basis. Unitholders tendering to Sprott could choose one of two options: either a direct exchange or a mutual fund merger providing a tax deferral. Provided that two-thirds of the units for each trust were tendered, the execution of a Letter of Transmittal (LoT) would give Sprott Power of Attorney (PoA) to, among other things, remove most SBT and CGT trustees and replace them with Sprott-appointed directors. This would give Sprott the ability to effect the mutual fund merger. Originally set to expire July 6, 2015, Sprott’s bid would be altered and extended a number of times.
Game Theories
Einav knew a hostile take-over wouldn’t be easy — they never are. This one proved thornier than most. “We don’t think this had ever been done before, where an investment fund made a hostile bid for another investment fund. So there was no comparison to look at.”
That first-of-a-kind quality would attract scrutiny from regulators, Ciardullo adds: “The first thing we had to get through – and we knew this was coming – was the fact that both the Ontario Securities Commission and the SEC had a myriad of questions about what we were doing because it was novel.” At early stages of the bid, Sprott’s legal team answered heaps of questions from those regulatory bodies.
Secondly, CFOC, in its proxy contest with Polar, had proven particularly tenacious. Thirdly, the Spicer trusts had Staley and his 11-member Bennett Jones team, including Norman Findlay, an experienced take-over partner. Staley, an experienced problem-solver specializing in take-over-bid litigation, would throw every legal rock he could at Sprott.
But months before launching its bid, Sprott stacked its legal deck as well. Its ace, aside from Einav, was Ciardullo, an advisor in many of Canada’s leading M&A deals — often hostile ones. If anyone might read Staley’s moves, it was Ciardullo; they had worked together in 2014 helping Osisko Mining Corp. foil Goldcorp’s $3.9-billion hostile take-over attempt.
A Taxing Issue
The first task for Sprott’s legal team was to work out a deal structure that would accomplish objectives of the take-over. A prime consideration was the tax implication for the targets’ Canadian and American unitholders. Sprott needed to create an innovative structure so its bid could happen on a tax-deferred basis and unitholders could avoid getting dinged when tendering to Sprott. That proved tricky, says Ciardullo, who worked closely with John Lorito, head of Stikeman Elliott’s tax group in Toronto, to come up with a suitable structure.
“We knew that the way we were structuring our bid in order to achieve tax-deferred treatment was quite novel,” says Ciardullo. “It had elements of a take-over to it. It had elements of a sale of assets to it, so more of a business combination transaction. To some degree, the transaction structure was a patchwork quilt. It was piecing together things that had been done over 20 years, in different transactions, in many cases that the regulators or the courts had commented on.”
Here, Ciardullo gives a shout-out to his Stikeman associate, J.R. Laffin. Laffin was tasked with the heavy lifting, poring through numerous M&A cases from past decades and gleaning rulings regulators and courts had made “so we could put them all together in a way we were confident would work,” says Ciardullo. Laffin created a deal structure that would withstand the inevitable intense scrutiny.
Nasty Business
Having kicked Polar to the curb, the Spicers’ legal team now quickly pondered how to shield itself from Sprott’s hostile bid. Dentons Canada LLP was long-time counsel to the Spicers. But Bennett Jones – hired in February 2015 – would act for the Special Committee of Independent Trustees, with Dentons in support.
A first order of business for Staley was explaining to Stefan Spicer and his trustees that things likely would get ugly and personal now that Sprott had launched its hostile bid. “One of the things that happen in proxy contests,” says Staley, “is there is some effort to demonize the directors and management of the target. … It’s unpleasant and something you sort of have to counsel [clients] to deal with.”
As summer 2015 approached, a bitter war of circulars and accusatory press releases erupted between Sprott and the Spicer funds. On June 9 of that year, SBT and CGT filed circulars urging unitholders to reject Sprott’s offer. They alleged, among other things, that Sprott was not offering a “meaningful” premium; that unitholders had just rejected a similar physical redemption feature from Polar; that Sprott was just trying to nab the targets’ additional management fees; and that, if they tendered to Sprott, CGT and SBT unitholders would be paying higher management fees in the future.
Sprott argued back in press releases that the CGT/SBT trustees were obfuscating the truth about the benefits of its offer. But unitholders, says Einav, were beginning to understand that SBT’s and CGT’s rules and redemption features essentially had them trapped.
“There are two main differences between our products and theirs,” says Einav. “Number one is our products are professionally managed and we put a lot of effort and time into marketing these products. And number two, structurally our products have a real redemption feature — 100 per cent NAV, that allowed the unitholders to get out at NAV. And those two features together allow us to trade at, or close to NAV. And when we started this offer, [Central Gold] traded at approximately an 8 per cent discount to NAV.” That 8 per cent discount, he says, was hurting Central Gold’s unitholders, and, he suggests, made Sprott’s offer attractive to them.
The first legal skirmish in Sprott’s take-over bid happened on June 18, 2015, when it sent CFOC a special shareholder meeting requisition. Sprott followed up on June 23 with an oppression action against CFOC in the Court of Queen’s Bench of Alberta. In turn, CFOC made a cross-application challenging the validity of Sprott’s requisition. On August 13, the Alberta court ruled Sprott’s requisition invalid. A later appeal upheld that ruling.
First round to the Spicer side.
Developing a Strategy
Even in the weeks before Sprott officially announced it was proceeding with a hostile take-over, the core team usually met in the war room several times a week, often in long, drawn-out meetings. Perrier was permitted, pizzas were not. “We tried to keep it healthy, because I was working on my figure,” jokes Einav.
On a white board, the Sprott team wrote down options for what to do next, trying to predict the possible legal permutations Bennett Jones would use to impair their bid. “That white board,” says Einav, “was written and rewritten a thousand times to get this thing done.” It was, adds Ciardullo, an intense phase of “game theory.” And they spent months doing it.
Einav tips his hat to opposition counsel: “Rob Staley? Very intelligent, very creative and very aggressive. [Bennett Jones] constantly came up with new ideas to kind of keep us at bay. But because there were constant communications within our core team and with the extended team, we were ready for this.”
Another thing hampered Sprott. The retail investors at the targeted trusts were a disparate lot, difficult to track down, contact and persuade to come over to Sprott. Central Gold and Silver Bullion certainly weren’t making that – or anything else – easy. At the end of March, as Polar was nipping at their heels, the CGT/SBT boards (composed essentially of the same people) slipped in an Advance Notice Rule amendment to their DoTs without unitholder approval. The new rule required advance notice with fixed deadlines when unitholders wished to nominate persons for election to their boards. That, they hoped, would make it difficult for a hostile bidder to pluck out and replace their trustees.
On June 24, after Sprott came on the scene, CGT and SBT – again without consulting unitholders – also altered amendment provisions in their DoTs that, among other things, affected both trusts’ compulsory acquisition thresholds in the event of a take-over bid. Previously, the DoTs required a bidder to acquire at least two-thirds of either CGT or SBT before it could automatically acquire remaining units. But after June 24, a bidder such as Sprott now needed to convince either trusts’ investors to tender at least 90 per cent of all outstanding units in the trust before the compulsory acquisition threshold was reached and it could automatically acquire the remaining 10 per cent of units.
Counter-punching
The same day CGT/SBT announced the new 90-per-cent rule for amending their DoTs, they launched joint proceedings against Sprott in the Ontario Superior Court. The case was heard before Justice Herman J. Wilton-Siegel on July 29, 2015.
Staley, along with his team of Derek Bell, Alan Gardner and Kris Hanc, asked the court to declare elements of Sprott’s offer illegal (in part because, they alleged, Sprott was secretly working with Polar). For their part, CGT and SBT wanted the court to affirm that their new amendment rule was valid and binding on Sprott.
Sprott, in turn, filed a counter-application challenging the validity of those amendments. Sprott also challenged the independence of the SBT/CGT Special Committee members. At Sprott’s table in court were Stikeman’s Peter Howard and Aaron Kreaden handling litigation. Einav, Ciardullo and Laffin were also on hand.
In litigation, Staley was a “worthy opponent” remarks Ciardullo. “But what people don’t always realize is that there are risks and dangers with coming after somebody. And in this case the discovery process that went along with litigation revealed some skeletons [the trusts] had in the closet.”
One bone of contention Sprott unearthed in earlier discovery was about Ian McAvity, “lead independent director” and Chair of CGT’s and SBT’s governance and nominating committees. McAvity, Sprott’s counsel learned, had been secretly given a six-per-cent gross revenue royalty for life from the Spicer-controlled administrator of CGT and SBT. Unitholders, who were funding those payments through management fees, were never told this.
McAvity reportedly received more than $4 million in such payments from 2005 to 2014. Eventually he stepped down from the Special Committees in August 2015. Then, last March, at age 73, he passed away suddenly. Sprott exposed other trustee conflicts as well.
No thwarting!
Though it wasn’t a clean sweep for Sprott’s team, Justice Wilton-Siegel largely sided with their arguments in court. He denied CGT’s and SBT’s application for an injunction enjoining the Sprott bids and ruled that CGT/SBT trustees “lacked the authority” to change their Advance Notice By-Laws without unitholder approval. The court also ruled CGT’s and SBT’s new 90-per-cent Compulsory Acquisition Thresholds were invalid.
On that point, the judge ruled they were an “improper defensive tactic” and remarked: “I think the only inference that can be drawn from these circumstances is that the Compulsory Acquisition Threshold Amendments were made for the principal purpose of thwarting the Sprott Bids.”
Stikemans’ Ciardullo says that after the bid was launched and Sprott started to get a little traction, the other side “started to get a little worried and realized they needed to be more aggressive. That’s when they made these amendments to their declaration of trust and initiated this court hearing, alleging that the Sprott bids were illegal.” Justice Wilton-Siegel’s judgment examined what the trustees did, says Ciardullo, “and he said the purpose was primarily to thwart the Sprott bid because of the timing and what they did and the effect that it would have on the Sprott offer. It was on that basis that he declared that their actions were improper defensive tactics. So he didn’t employ the classic business judgment type of analysis, he used a different analysis … as an M&A lawyer, I found that very interesting.”
Embedded in Sprott’s Letter of Transmittal (LoT) as part of its bid was a provision that meant if SBT or CGT unitholders tendered their units to Sprott, they were also giving Sprott Power of Attorney. That PoT allowed Sprott to sign written resolutions on behalf of tendering unitholders endorsing any changes Sprott needed to make to the CGT/SBT Declaration of Trusts to complete its take-over. That included such moves as replacing incumbent and conflicted Spicer trustees with Sprott-appointed trustees.
While the judge found the Sprott PoT was simply a tool for its take-over transaction – not part of an improper proxy contest as the targets impugned – he agreed with SBT/CGT counsel that Sprott’s language in its LoT was vague regarding when its power of attorney terminated if its bid failed. He ordered Sprott to clarify that.
For Sprott, recounts Ciardullo, the Ontario court proceedings endowed them with unexpected spinoffs advancing their cause. “Even though the litigation was designed to bog us down and disrupt the transaction, it ended up being one of the most positive things that happened to us because we had a judge essentially saying at the end of the day that the target board had engaged in improper defensive tactics, the primary purpose of which was to shut down or thwart or stop the Sprott bid.”
Adds Einav: “When we found out about McAvity and his six-per-cent fee as lead independent director, it struck a nerve with retail holders. One of the big problems we had was reaching these retail holders.”
Sprott had hired Kingsdale Shareholder Services to find and contact CGT and SBT unitholders. They were “doing a great job reaching out and making hundreds of calls a day to unitholders.” But it was summer, adds Einav, and Kingsdale had trouble locating them since many were not picking up or returning the calls at first. “But when this information came out, some of them actually started reaching out to us to understand what was going on, what were the issues. Kingsdale did a great job converting those calls into tenders to us.”
Finding Their Purpose
But the targets still had fight left in them. And surprises. “One unique feature of this narrative,” says Bennett Jones’s Staley, “is that it lasted almost a year, an almost unprecedented period of time for a target to be under attack.”
More testy press releases flowed from both sides after the Ontario court proceedings. Soon Sprott was faced with an order for a hearing in front of an Ontario Securities Commission (OSC) panel.
The application for an OSC proceeding under the public interest section of the Ontario Securities Act commenced November 11 with the SBT/CGT trustees seeking to enjoin the Sprott bid. That was a bit surprising, says Ciardullo, since CGT/SBT had tried the court route in late July without much success. “There is some overlap in the rules between courts and securities regulators in the context of take-over bids,” explains Ciardullo. “And to their credit [Staley] took advantage of that and used different forums to come after us.”
CGT/SBT complained to the OSC that, among other things, the Sprott bid structure was confusing to unitholders and contrary to the public interest (in part because Sprott’s amendments to the PoT were allegedly abusive to unitholders); that Sprott made misleading statements about the NAVs and trading value of SBT and CGT in the media and to unitholders; and that Sprott violated the identical consideration requirements of the Ontario Securities Act because, depending on how much gold or silver they owned, some unitholders might not be able to take advantage of the physical redemption features Sprott offered in exchange for CGT/SBT units.
This was a particularly challenging time for Sprott’s counsel, notes Ciardullo. While Bennett Jones, as applicant, had a fair bit of time to prepare its case before the OSC, Sprott only learned on a Thursday night there’d be a hearing the following Wednesday, November 18. Einav and the Stikeman team, including the two litigation partners who handled the OSC hearings – Peter Howard, Eliot Kolers – and associate Mel Hogg now had from CGT and SBT, “a dozen very novel and nuanced complaints and we had to prepare hundreds of pages of response materials over the weekend,” recounts Ciardullo.
No one slept much over the weekend.
Fragged
Ciardullo sleeps with his BlackBerry set to vibrate on the night table beside his bed, something that “annoys the hell out of my wife.” The eve of the OSC hearing, he says, “… between midnight and two in the morning, there was a steady stream of buzzing emanating from the nightstand. And I knew something was up.”
Einav calls it “the hand grenade.” As it went off on his iPhone, he and Glen Williams, Sprott’s Director of Communications, relayed some legal shrapnel to Ciardullo via text messages. Ciardullo saw about 30 on his phone. The substance, Ciardullo continues, “was the target had, literally the night before the hearing, announced they had signed a letter of intent with Purpose Investments.”
After more than six months with the Sprott bid chiselling away the hold the Spicer family had on their trusts, the Spicers at last found a white knight in the form of Som Seif, President, CEO and founder of Purpose Investments, a Toronto investment firm with its own funds and ETFs.
“It was a clever move,” grants Einav. It set up a situation, he explains, where the Spicers’ counsel portrayed Sprott as effectively trying to take out CGT’s and SBT’s board of directors while they were in the middle of working on an alternate transaction. That was something no one had ever tried before in Canadian M&A history. “It added an extra layer of complexity to what we needed to deal with on a Wednesday morning,” says Einav.
The OSC dismissed most of the SBT/CGT complaints against Sprott, save for ordering Sprott to further enhance and clarify its disclosure to unitholders and give them an additional 15 days to digest that information before Sprott continue trying to lasso them with its bid. Meanwhile, Purpose Investments had just offered to take over as the Spicers’ manager and trustee of SBT and CGT and convert both to Purpose Investments’ exchange-traded funds.
In the end, Purpose got only one of the trusts: Silver Bullion, the much smaller of the prizes Sprott sought. As it turned out, John Wilson, Sprott’s CEO, knew Som Seif. Wilson reached out to Seif and the two went to a café on a Sunday morning. Wilson agreed to halt Sprott’s bid for SBT and, in exchange, Purpose promised to keep its paws off Central Gold Trust.
Purpose has since turned SBT into an ETF. The Spicers and Seif are splitting the fees on SBT and the Central Gold Trust vehicle has been rolled into the Sprott Gold Fund. The Spicers managed to hang on to about 50 per cent of the management fees they’d been collecting through Central Fund of Canada and SBT.
What they weren’t able to hang on to were all their board members. On Nov. 4, Sprott had amended its Letter of Intent (LoT) to permit it to reconfigure the CGT and SBT boards with its own nominees. They could do that on or after November 19 via written resolution if more than 50 per cent of outstanding units were tendered to Sprott offers. The unitholders at Central Gold did just that, and, on Dec. 7, Sprott changed all the board members except one. That gave Sprott the ability to call a meeting unthwarted by the old board and get a vote on the final merger or take-over bid. In Staley’s view, the tortuous take-over battle went this way: “The three targets won four of the five contests, two successful proxy contest defences [and completed] one successful deal with a white knight.” He’ll take that as a kind of victory, he says.
On January 15, 2016, Sprott’s unsolicited bid culminated in a meeting at St. Andrew’s Club & Conference Centre in downtown Toronto, at which Central Gold Trust unitholders finally received the ability to vote on the transaction with Sprott that was first proposed in April of the previous year. Ninety-six per cent of the unitholders present or voting by proxy voted in favour of the merger. At the end of the day, Sprott won Central Gold Trust and the Spicers, with Som Seif, kept SBT.Now all that was left was to load up the trusts’ gold, stored in a vault at the CIBC’s main branch in Toronto, and move it to the Royal Canadian Mint’s vaults in Ottawa where Sprott would store it. Here, Sprott hit a final bump — an unexpected insurance problem for all that gold.
“While $1.2 billion worth of gold sounds like a lot, it can actually all fit in one armored car,” explained Johann Lau, Vice-president of Investment Administration at Sprott, in an email. “However, due to insurance regulations on the maximum value allowed to be transported in one vehicle, we had to divide the bullion among eight armoured cars.”
Everyone involved at Sprott was on edge as an estimated 1,880 gold bars, worth $637,600 each, were ferried about 400 kilometres to Ottawa in those trucks. While it all went smoothly, says Lau, “it’s safe to say we all slept a bit better once the gold arrived safely at the Royal Canadian Mint.”
Take-over Timeline
Feb. 3, 2015: Silver Bullion Trust (SBT) trustees get a requisition from hedge fund Polar Securities Inc., which owns 10.02 per cent of its shares. Polar wants SBT unitholders to vote on replacing SBT trustees with Polar nominees and it wants to incorporate a physical redemption feature into the fund making it easier for investors to cash out. Two days later Polar asks essentially the same of Central Gold Trust (CGT).
April 23, 2015: While SBT and CGT are still dealing with Polar, Sprott Asset Management announces its intention to make offers on both trusts.
May 1 and 20, 2015: First CGT and then SBT unitholders vote to reject Polar’s propositions.
May 27, 2015: Sprott officially launches concurrent unsolicited bids for all outstanding SBT and CGT units. In a bid set to expire July 6, it offers, in exchange for SBT/CGT units, Sprott Physical Gold Trust or Sprott Physical Silver Trust units on a NAV for NAV basis. Target unitholders can choose between outright sale of their units or a tax-deferred exchange granting Sprott Power of Attorney to approve, among other things, a mutual fund merger. Sprott needs at least 66 and 2/3rds of units tendered from each trust to achieve the transactions.
June 9, 2015: SBT and CGT trustees file circulars urging their unitholders to reject the Sprott bids. Among their complaints: Sprott is not offering an attractive premium and it charges higher management fees than they do which will erode NAV over time.
June 23, 2015: Relying on an oppression remedy, Sprott files an application against Central Fund of Canada – the parent holding fund of CGT and SBT – in Court of Queen’s Bench Alberta. Sprott asks the court to allow a meeting held by CFOC’s Class A unitholders so they can hold a vote that would favour Sprott. Ultimately both the court and a later appeal court rule against Sprott.
June 24, 2015: The same day SBT/CGT amends their Declarations of Trust without unitholder approval – including one to their compulsory acquisition thresholds requiring a bidder obtain 90 per cent of all their outstanding unit before automatically obtaining the rest – they launch a joint proceeding against Sprott in the Ontario Superior Court. They ask the court to declare their amendments valid and binding on Sprott and that aspects of Sprott’s bid are illegal. Sprott files a counter claim regarding the validity of the targets’ amendments.
July 3, 2015: The court dismisses CGT/SBT claims, saying their amendments are invalid and were improper defensive tactics meant to thwart Sprott’s bid.
Nov. 4, 2015: Sprott amends its Letter of Transmittal to replace CGT/SBT trustees with its own picks via written resolution on or after Nov. 19 if it acquires more than 50 per cent of each target’s units.
Nov. 11, 2015: CGT/SBT ask the Ontario Securities Commission to enjoin the Sprott offer under public interest proceedings, claiming, among other things, Sprott is using Power of Attorney illegally in its bid and the bid is contrary to public interest in numerous respects.
Nov. 17, 2015: Less than 24 hours before the OSC hearing, CGT/SBT announce an alternate deal with white knight Purpose Investments.
Nov. 18-19, 2015: OSC dismisses CGT/SBT application, but orders Sprott to enhance its disclosure to target unitholders and give them 15 days to digest that information before proceeding with bid.
Nov. 27, 2015: Purpose and CGT/SBT trustees sign definitive agreement for their alternative transaction.
Dec. 7, 2015: With enough CGT units tendered, Sprott exercises rights under its PoA to remove majority of CGT trustees and replace with Sprott nominees — something rarely done before in Canadian M&A history. Sprott requisitions meeting of CGT unitholders to consider merger with Sprott Physical Gold Trust.
Dec. 16, 2015: After meeting at a café, Sprott and Purpose CEOs agree that Sprott can have CGT and in exchange it will cease pursuit of SBT and not impede Purpose in that transaction.
Jan. 15, 2016: CGT unitholders approve mutual fund merger with Sprott by 96 per cent.
It unleashed rounds of litigation at securities commissions and courts in Alberta and Ontario, culminating in Sprott Asset Management LP’s successful $1.2-billion unsolicited take-over of Central GoldTrust (CGT) on January 15, 2016. It was the first take-over of its kind in Canadian history. But Sprott’s management had their sights set on two targets, and one managed to escape — Silver Bullion Trust (SBT), though it was much smaller than CGT, the golden prize eventually captured. This was after a hearty legal defence by the two targets’ external counsel, Bennett Jones LLP.
The deal had all the makings of a legal thriller, with its drama, deft legal gamesmanship and its implications for Canadian trusts in any future unsolicited transactions. “I have been involved in a lot of fairly hostile transactions. Some very acrimonious ones,” says John Ciardullo, the Toronto partner who heads Stikeman Elliott LLP’s corporate department. As Sprott’s lead external lawyer, he, along with Arthur Einav – the company’s General Counsel and Corporate Secretary – spent much of 2015 leading Sprott’s legal efforts to win over unitholders at Central Gold Trust and their bullion. “This one took acrimony to a new level,” he says.
Sprott first announced intentions to go after CGT and SBT on April 23, 2015. It was up against a strong customer seller in Ontario’s Spicer family, which founded the targeted trusts. And the Spicers had hired a team at Bennett Jones, led by Toronto partner Robert Staley, Head of Shareholder Activism and Critical Situations at the firm.
Spicer
Every mutiny is sparked by stewing dissatisfaction leading to a critical incident. In the case of the Bounty in 1789, an uprising was seeded when ship captain Lieutenant William Bligh chided his carpenter for cutting poor quality billets of wood. In the Spicers’ case, an institutional unitholder chided the poor performance and management of both CGT and SBT and wanted trustees to walk the plank.
For years, the Spicer family and their directors ran and controlled the two physical bullion trusts founded through parent company Central Fund of Canada Ltd. CFOC was founded by family patriarch Philip M. Spicer in 1961. In 2003 his son Stefan Spicer founded CGT, and in 2009, SBT. CGT and SBT operated from a brick manse on a leafy street in Ancaster, Ontario.
The heavier of CFOC’s two trust funds, with about $1.2 billion in assets, was CGT. SBT held about $50 million. Both trusts traded on the TSX and NYSE, with unitholders consisting mainly of mom-and-pop retail investors. But it was an institutional investor, Polar Securities Inc., which first attempted a mutiny for the bullion.
Polar
Polar, a Toronto hedge fund, had bought stakes in the Spicer treasure chests in 2013 – 10.02 per cent in SBT, 4.4 per cent in CGT – but the firm had quickly soured on management’s handling of the funds. Compared to peers, SBT and CGT units consistently traded at a troubling discount to the net asset value (NAV) of the gold and silver in each fund. In a press release at the time, Polar complained the average discount to NAV for SBT was 7.4 per cent and 5.7 per cent for CGT.
On February 3, 2015, Polar pulled out its rapier with a requisition for a unitholder meeting. Polar sought to change how unitholders could redeem units. It wanted SBT and CGT to amend their Declarations of Trust (DoT) dictating how management should administer the assets held on behalf of unitholders. It also wanted to remove three directors on the board of SBT, where the hedge fund’s sizable stake gave it clout, and replace them with its own representatives.
CFOC put together a special committee of trustees for its three entities. With the help of Staley’s Bennett Jones team it fended off Polar’s proxy contests three months after they began.
The Scent of a Take-over
Knowing the Polar proxy had dripped blood in the water, Spicer trustees decided to institute another safeguard. They passed a new advance notice rule for their DoT, hoping it would stick in the craw of any other hostiles that might emerge.
Sure enough, Sprott was quietly watching things unfold as Polar’s sunken proxy nevertheless exposed opportunity. “We saw what was going on in February and we started having increased discussions into late February and into March” about making a bid, recounts Einav.
It wasn’t hard for Sprott to sniff out latent dissent among the Spicers’ investors. “We actually had unitholders from Central Gold Trust calling us and asking us when and if we would enter the fray,” says Einav. “We determined it would be on strategy for us to make an offer for” CGT. Sprott, says Einav, had long strived to be Canada’s leader in exchange-traded precious metals. Nabbing the Spicers’ trusts would have significantly advanced Sprott’s standing in the physical bullion trust sector, giving it the opportunity to manage the funds better.
On May 27, 2015, after creating Asset Management Gold Bid LP and Sprott Asset Management Silver Bid LP as affiliates, Sprott launched concurrent hostile take-over bids for CGT and SBT.
In exchange for all outstanding units of those two trusts, Sprott offered units of Sprott Physical Gold Trust and Sprott Physical Silver Trust on a NAV-for-NAV basis. Unitholders tendering to Sprott could choose one of two options: either a direct exchange or a mutual fund merger providing a tax deferral. Provided that two-thirds of the units for each trust were tendered, the execution of a Letter of Transmittal (LoT) would give Sprott Power of Attorney (PoA) to, among other things, remove most SBT and CGT trustees and replace them with Sprott-appointed directors. This would give Sprott the ability to effect the mutual fund merger. Originally set to expire July 6, 2015, Sprott’s bid would be altered and extended a number of times.
Game Theories
Einav knew a hostile take-over wouldn’t be easy — they never are. This one proved thornier than most. “We don’t think this had ever been done before, where an investment fund made a hostile bid for another investment fund. So there was no comparison to look at.”
That first-of-a-kind quality would attract scrutiny from regulators, Ciardullo adds: “The first thing we had to get through – and we knew this was coming – was the fact that both the Ontario Securities Commission and the SEC had a myriad of questions about what we were doing because it was novel.” At early stages of the bid, Sprott’s legal team answered heaps of questions from those regulatory bodies.
Secondly, CFOC, in its proxy contest with Polar, had proven particularly tenacious. Thirdly, the Spicer trusts had Staley and his 11-member Bennett Jones team, including Norman Findlay, an experienced take-over partner. Staley, an experienced problem-solver specializing in take-over-bid litigation, would throw every legal rock he could at Sprott.
But months before launching its bid, Sprott stacked its legal deck as well. Its ace, aside from Einav, was Ciardullo, an advisor in many of Canada’s leading M&A deals — often hostile ones. If anyone might read Staley’s moves, it was Ciardullo; they had worked together in 2014 helping Osisko Mining Corp. foil Goldcorp’s $3.9-billion hostile take-over attempt.
A Taxing Issue
The first task for Sprott’s legal team was to work out a deal structure that would accomplish objectives of the take-over. A prime consideration was the tax implication for the targets’ Canadian and American unitholders. Sprott needed to create an innovative structure so its bid could happen on a tax-deferred basis and unitholders could avoid getting dinged when tendering to Sprott. That proved tricky, says Ciardullo, who worked closely with John Lorito, head of Stikeman Elliott’s tax group in Toronto, to come up with a suitable structure.
“We knew that the way we were structuring our bid in order to achieve tax-deferred treatment was quite novel,” says Ciardullo. “It had elements of a take-over to it. It had elements of a sale of assets to it, so more of a business combination transaction. To some degree, the transaction structure was a patchwork quilt. It was piecing together things that had been done over 20 years, in different transactions, in many cases that the regulators or the courts had commented on.”
Here, Ciardullo gives a shout-out to his Stikeman associate, J.R. Laffin. Laffin was tasked with the heavy lifting, poring through numerous M&A cases from past decades and gleaning rulings regulators and courts had made “so we could put them all together in a way we were confident would work,” says Ciardullo. Laffin created a deal structure that would withstand the inevitable intense scrutiny.
Nasty Business
Having kicked Polar to the curb, the Spicers’ legal team now quickly pondered how to shield itself from Sprott’s hostile bid. Dentons Canada LLP was long-time counsel to the Spicers. But Bennett Jones – hired in February 2015 – would act for the Special Committee of Independent Trustees, with Dentons in support.
A first order of business for Staley was explaining to Stefan Spicer and his trustees that things likely would get ugly and personal now that Sprott had launched its hostile bid. “One of the things that happen in proxy contests,” says Staley, “is there is some effort to demonize the directors and management of the target. … It’s unpleasant and something you sort of have to counsel [clients] to deal with.”
As summer 2015 approached, a bitter war of circulars and accusatory press releases erupted between Sprott and the Spicer funds. On June 9 of that year, SBT and CGT filed circulars urging unitholders to reject Sprott’s offer. They alleged, among other things, that Sprott was not offering a “meaningful” premium; that unitholders had just rejected a similar physical redemption feature from Polar; that Sprott was just trying to nab the targets’ additional management fees; and that, if they tendered to Sprott, CGT and SBT unitholders would be paying higher management fees in the future.
Sprott argued back in press releases that the CGT/SBT trustees were obfuscating the truth about the benefits of its offer. But unitholders, says Einav, were beginning to understand that SBT’s and CGT’s rules and redemption features essentially had them trapped.
“There are two main differences between our products and theirs,” says Einav. “Number one is our products are professionally managed and we put a lot of effort and time into marketing these products. And number two, structurally our products have a real redemption feature — 100 per cent NAV, that allowed the unitholders to get out at NAV. And those two features together allow us to trade at, or close to NAV. And when we started this offer, [Central Gold] traded at approximately an 8 per cent discount to NAV.” That 8 per cent discount, he says, was hurting Central Gold’s unitholders, and, he suggests, made Sprott’s offer attractive to them.
The first legal skirmish in Sprott’s take-over bid happened on June 18, 2015, when it sent CFOC a special shareholder meeting requisition. Sprott followed up on June 23 with an oppression action against CFOC in the Court of Queen’s Bench of Alberta. In turn, CFOC made a cross-application challenging the validity of Sprott’s requisition. On August 13, the Alberta court ruled Sprott’s requisition invalid. A later appeal upheld that ruling.
First round to the Spicer side.
Developing a Strategy
Even in the weeks before Sprott officially announced it was proceeding with a hostile take-over, the core team usually met in the war room several times a week, often in long, drawn-out meetings. Perrier was permitted, pizzas were not. “We tried to keep it healthy, because I was working on my figure,” jokes Einav.
On a white board, the Sprott team wrote down options for what to do next, trying to predict the possible legal permutations Bennett Jones would use to impair their bid. “That white board,” says Einav, “was written and rewritten a thousand times to get this thing done.” It was, adds Ciardullo, an intense phase of “game theory.” And they spent months doing it.
Einav tips his hat to opposition counsel: “Rob Staley? Very intelligent, very creative and very aggressive. [Bennett Jones] constantly came up with new ideas to kind of keep us at bay. But because there were constant communications within our core team and with the extended team, we were ready for this.”
Another thing hampered Sprott. The retail investors at the targeted trusts were a disparate lot, difficult to track down, contact and persuade to come over to Sprott. Central Gold and Silver Bullion certainly weren’t making that – or anything else – easy. At the end of March, as Polar was nipping at their heels, the CGT/SBT boards (composed essentially of the same people) slipped in an Advance Notice Rule amendment to their DoTs without unitholder approval. The new rule required advance notice with fixed deadlines when unitholders wished to nominate persons for election to their boards. That, they hoped, would make it difficult for a hostile bidder to pluck out and replace their trustees.
On June 24, after Sprott came on the scene, CGT and SBT – again without consulting unitholders – also altered amendment provisions in their DoTs that, among other things, affected both trusts’ compulsory acquisition thresholds in the event of a take-over bid. Previously, the DoTs required a bidder to acquire at least two-thirds of either CGT or SBT before it could automatically acquire remaining units. But after June 24, a bidder such as Sprott now needed to convince either trusts’ investors to tender at least 90 per cent of all outstanding units in the trust before the compulsory acquisition threshold was reached and it could automatically acquire the remaining 10 per cent of units.
Counter-punching
The same day CGT/SBT announced the new 90-per-cent rule for amending their DoTs, they launched joint proceedings against Sprott in the Ontario Superior Court. The case was heard before Justice Herman J. Wilton-Siegel on July 29, 2015.
Staley, along with his team of Derek Bell, Alan Gardner and Kris Hanc, asked the court to declare elements of Sprott’s offer illegal (in part because, they alleged, Sprott was secretly working with Polar). For their part, CGT and SBT wanted the court to affirm that their new amendment rule was valid and binding on Sprott.
Sprott, in turn, filed a counter-application challenging the validity of those amendments. Sprott also challenged the independence of the SBT/CGT Special Committee members. At Sprott’s table in court were Stikeman’s Peter Howard and Aaron Kreaden handling litigation. Einav, Ciardullo and Laffin were also on hand.
In litigation, Staley was a “worthy opponent” remarks Ciardullo. “But what people don’t always realize is that there are risks and dangers with coming after somebody. And in this case the discovery process that went along with litigation revealed some skeletons [the trusts] had in the closet.”
One bone of contention Sprott unearthed in earlier discovery was about Ian McAvity, “lead independent director” and Chair of CGT’s and SBT’s governance and nominating committees. McAvity, Sprott’s counsel learned, had been secretly given a six-per-cent gross revenue royalty for life from the Spicer-controlled administrator of CGT and SBT. Unitholders, who were funding those payments through management fees, were never told this.
McAvity reportedly received more than $4 million in such payments from 2005 to 2014. Eventually he stepped down from the Special Committees in August 2015. Then, last March, at age 73, he passed away suddenly. Sprott exposed other trustee conflicts as well.
No thwarting!
Though it wasn’t a clean sweep for Sprott’s team, Justice Wilton-Siegel largely sided with their arguments in court. He denied CGT’s and SBT’s application for an injunction enjoining the Sprott bids and ruled that CGT/SBT trustees “lacked the authority” to change their Advance Notice By-Laws without unitholder approval. The court also ruled CGT’s and SBT’s new 90-per-cent Compulsory Acquisition Thresholds were invalid.
On that point, the judge ruled they were an “improper defensive tactic” and remarked: “I think the only inference that can be drawn from these circumstances is that the Compulsory Acquisition Threshold Amendments were made for the principal purpose of thwarting the Sprott Bids.”
Stikemans’ Ciardullo says that after the bid was launched and Sprott started to get a little traction, the other side “started to get a little worried and realized they needed to be more aggressive. That’s when they made these amendments to their declaration of trust and initiated this court hearing, alleging that the Sprott bids were illegal.” Justice Wilton-Siegel’s judgment examined what the trustees did, says Ciardullo, “and he said the purpose was primarily to thwart the Sprott bid because of the timing and what they did and the effect that it would have on the Sprott offer. It was on that basis that he declared that their actions were improper defensive tactics. So he didn’t employ the classic business judgment type of analysis, he used a different analysis … as an M&A lawyer, I found that very interesting.”
Embedded in Sprott’s Letter of Transmittal (LoT) as part of its bid was a provision that meant if SBT or CGT unitholders tendered their units to Sprott, they were also giving Sprott Power of Attorney. That PoT allowed Sprott to sign written resolutions on behalf of tendering unitholders endorsing any changes Sprott needed to make to the CGT/SBT Declaration of Trusts to complete its take-over. That included such moves as replacing incumbent and conflicted Spicer trustees with Sprott-appointed trustees.
While the judge found the Sprott PoT was simply a tool for its take-over transaction – not part of an improper proxy contest as the targets impugned – he agreed with SBT/CGT counsel that Sprott’s language in its LoT was vague regarding when its power of attorney terminated if its bid failed. He ordered Sprott to clarify that.
For Sprott, recounts Ciardullo, the Ontario court proceedings endowed them with unexpected spinoffs advancing their cause. “Even though the litigation was designed to bog us down and disrupt the transaction, it ended up being one of the most positive things that happened to us because we had a judge essentially saying at the end of the day that the target board had engaged in improper defensive tactics, the primary purpose of which was to shut down or thwart or stop the Sprott bid.”
Adds Einav: “When we found out about McAvity and his six-per-cent fee as lead independent director, it struck a nerve with retail holders. One of the big problems we had was reaching these retail holders.”
Sprott had hired Kingsdale Shareholder Services to find and contact CGT and SBT unitholders. They were “doing a great job reaching out and making hundreds of calls a day to unitholders.” But it was summer, adds Einav, and Kingsdale had trouble locating them since many were not picking up or returning the calls at first. “But when this information came out, some of them actually started reaching out to us to understand what was going on, what were the issues. Kingsdale did a great job converting those calls into tenders to us.”
Finding Their Purpose
But the targets still had fight left in them. And surprises. “One unique feature of this narrative,” says Bennett Jones’s Staley, “is that it lasted almost a year, an almost unprecedented period of time for a target to be under attack.”
More testy press releases flowed from both sides after the Ontario court proceedings. Soon Sprott was faced with an order for a hearing in front of an Ontario Securities Commission (OSC) panel.
The application for an OSC proceeding under the public interest section of the Ontario Securities Act commenced November 11 with the SBT/CGT trustees seeking to enjoin the Sprott bid. That was a bit surprising, says Ciardullo, since CGT/SBT had tried the court route in late July without much success. “There is some overlap in the rules between courts and securities regulators in the context of take-over bids,” explains Ciardullo. “And to their credit [Staley] took advantage of that and used different forums to come after us.”
CGT/SBT complained to the OSC that, among other things, the Sprott bid structure was confusing to unitholders and contrary to the public interest (in part because Sprott’s amendments to the PoT were allegedly abusive to unitholders); that Sprott made misleading statements about the NAVs and trading value of SBT and CGT in the media and to unitholders; and that Sprott violated the identical consideration requirements of the Ontario Securities Act because, depending on how much gold or silver they owned, some unitholders might not be able to take advantage of the physical redemption features Sprott offered in exchange for CGT/SBT units.
This was a particularly challenging time for Sprott’s counsel, notes Ciardullo. While Bennett Jones, as applicant, had a fair bit of time to prepare its case before the OSC, Sprott only learned on a Thursday night there’d be a hearing the following Wednesday, November 18. Einav and the Stikeman team, including the two litigation partners who handled the OSC hearings – Peter Howard, Eliot Kolers – and associate Mel Hogg now had from CGT and SBT, “a dozen very novel and nuanced complaints and we had to prepare hundreds of pages of response materials over the weekend,” recounts Ciardullo.
No one slept much over the weekend.
Fragged
Ciardullo sleeps with his BlackBerry set to vibrate on the night table beside his bed, something that “annoys the hell out of my wife.” The eve of the OSC hearing, he says, “… between midnight and two in the morning, there was a steady stream of buzzing emanating from the nightstand. And I knew something was up.”
Einav calls it “the hand grenade.” As it went off on his iPhone, he and Glen Williams, Sprott’s Director of Communications, relayed some legal shrapnel to Ciardullo via text messages. Ciardullo saw about 30 on his phone. The substance, Ciardullo continues, “was the target had, literally the night before the hearing, announced they had signed a letter of intent with Purpose Investments.”
After more than six months with the Sprott bid chiselling away the hold the Spicer family had on their trusts, the Spicers at last found a white knight in the form of Som Seif, President, CEO and founder of Purpose Investments, a Toronto investment firm with its own funds and ETFs.
“It was a clever move,” grants Einav. It set up a situation, he explains, where the Spicers’ counsel portrayed Sprott as effectively trying to take out CGT’s and SBT’s board of directors while they were in the middle of working on an alternate transaction. That was something no one had ever tried before in Canadian M&A history. “It added an extra layer of complexity to what we needed to deal with on a Wednesday morning,” says Einav.
The OSC dismissed most of the SBT/CGT complaints against Sprott, save for ordering Sprott to further enhance and clarify its disclosure to unitholders and give them an additional 15 days to digest that information before Sprott continue trying to lasso them with its bid. Meanwhile, Purpose Investments had just offered to take over as the Spicers’ manager and trustee of SBT and CGT and convert both to Purpose Investments’ exchange-traded funds.
In the end, Purpose got only one of the trusts: Silver Bullion, the much smaller of the prizes Sprott sought. As it turned out, John Wilson, Sprott’s CEO, knew Som Seif. Wilson reached out to Seif and the two went to a café on a Sunday morning. Wilson agreed to halt Sprott’s bid for SBT and, in exchange, Purpose promised to keep its paws off Central Gold Trust.
Purpose has since turned SBT into an ETF. The Spicers and Seif are splitting the fees on SBT and the Central Gold Trust vehicle has been rolled into the Sprott Gold Fund. The Spicers managed to hang on to about 50 per cent of the management fees they’d been collecting through Central Fund of Canada and SBT.
What they weren’t able to hang on to were all their board members. On Nov. 4, Sprott had amended its Letter of Intent (LoT) to permit it to reconfigure the CGT and SBT boards with its own nominees. They could do that on or after November 19 via written resolution if more than 50 per cent of outstanding units were tendered to Sprott offers. The unitholders at Central Gold did just that, and, on Dec. 7, Sprott changed all the board members except one. That gave Sprott the ability to call a meeting unthwarted by the old board and get a vote on the final merger or take-over bid. In Staley’s view, the tortuous take-over battle went this way: “The three targets won four of the five contests, two successful proxy contest defences [and completed] one successful deal with a white knight.” He’ll take that as a kind of victory, he says.
On January 15, 2016, Sprott’s unsolicited bid culminated in a meeting at St. Andrew’s Club & Conference Centre in downtown Toronto, at which Central Gold Trust unitholders finally received the ability to vote on the transaction with Sprott that was first proposed in April of the previous year. Ninety-six per cent of the unitholders present or voting by proxy voted in favour of the merger. At the end of the day, Sprott won Central Gold Trust and the Spicers, with Som Seif, kept SBT.Now all that was left was to load up the trusts’ gold, stored in a vault at the CIBC’s main branch in Toronto, and move it to the Royal Canadian Mint’s vaults in Ottawa where Sprott would store it. Here, Sprott hit a final bump — an unexpected insurance problem for all that gold.
“While $1.2 billion worth of gold sounds like a lot, it can actually all fit in one armored car,” explained Johann Lau, Vice-president of Investment Administration at Sprott, in an email. “However, due to insurance regulations on the maximum value allowed to be transported in one vehicle, we had to divide the bullion among eight armoured cars.”
Everyone involved at Sprott was on edge as an estimated 1,880 gold bars, worth $637,600 each, were ferried about 400 kilometres to Ottawa in those trucks. While it all went smoothly, says Lau, “it’s safe to say we all slept a bit better once the gold arrived safely at the Royal Canadian Mint.”
Take-over Timeline
From official beginning to end, Sprott Asset Management’s hostile take-over of Central Gold Trust took a whopping 267 days — not counting Polar Securities’ failed three-month proxy contest with Central Gold and its sister fund, Silver Bullion Trust, that set the stage for Sprott’s historical bid. Here are some key moments in the transaction:
Feb. 3, 2015: Silver Bullion Trust (SBT) trustees get a requisition from hedge fund Polar Securities Inc., which owns 10.02 per cent of its shares. Polar wants SBT unitholders to vote on replacing SBT trustees with Polar nominees and it wants to incorporate a physical redemption feature into the fund making it easier for investors to cash out. Two days later Polar asks essentially the same of Central Gold Trust (CGT).
April 23, 2015: While SBT and CGT are still dealing with Polar, Sprott Asset Management announces its intention to make offers on both trusts.
May 1 and 20, 2015: First CGT and then SBT unitholders vote to reject Polar’s propositions.
May 27, 2015: Sprott officially launches concurrent unsolicited bids for all outstanding SBT and CGT units. In a bid set to expire July 6, it offers, in exchange for SBT/CGT units, Sprott Physical Gold Trust or Sprott Physical Silver Trust units on a NAV for NAV basis. Target unitholders can choose between outright sale of their units or a tax-deferred exchange granting Sprott Power of Attorney to approve, among other things, a mutual fund merger. Sprott needs at least 66 and 2/3rds of units tendered from each trust to achieve the transactions.
June 9, 2015: SBT and CGT trustees file circulars urging their unitholders to reject the Sprott bids. Among their complaints: Sprott is not offering an attractive premium and it charges higher management fees than they do which will erode NAV over time.
June 23, 2015: Relying on an oppression remedy, Sprott files an application against Central Fund of Canada – the parent holding fund of CGT and SBT – in Court of Queen’s Bench Alberta. Sprott asks the court to allow a meeting held by CFOC’s Class A unitholders so they can hold a vote that would favour Sprott. Ultimately both the court and a later appeal court rule against Sprott.
June 24, 2015: The same day SBT/CGT amends their Declarations of Trust without unitholder approval – including one to their compulsory acquisition thresholds requiring a bidder obtain 90 per cent of all their outstanding unit before automatically obtaining the rest – they launch a joint proceeding against Sprott in the Ontario Superior Court. They ask the court to declare their amendments valid and binding on Sprott and that aspects of Sprott’s bid are illegal. Sprott files a counter claim regarding the validity of the targets’ amendments.
July 3, 2015: The court dismisses CGT/SBT claims, saying their amendments are invalid and were improper defensive tactics meant to thwart Sprott’s bid.
Nov. 4, 2015: Sprott amends its Letter of Transmittal to replace CGT/SBT trustees with its own picks via written resolution on or after Nov. 19 if it acquires more than 50 per cent of each target’s units.
Nov. 11, 2015: CGT/SBT ask the Ontario Securities Commission to enjoin the Sprott offer under public interest proceedings, claiming, among other things, Sprott is using Power of Attorney illegally in its bid and the bid is contrary to public interest in numerous respects.
Nov. 17, 2015: Less than 24 hours before the OSC hearing, CGT/SBT announce an alternate deal with white knight Purpose Investments.
Nov. 18-19, 2015: OSC dismisses CGT/SBT application, but orders Sprott to enhance its disclosure to target unitholders and give them 15 days to digest that information before proceeding with bid.
Nov. 27, 2015: Purpose and CGT/SBT trustees sign definitive agreement for their alternative transaction.
Dec. 7, 2015: With enough CGT units tendered, Sprott exercises rights under its PoA to remove majority of CGT trustees and replace with Sprott nominees — something rarely done before in Canadian M&A history. Sprott requisitions meeting of CGT unitholders to consider merger with Sprott Physical Gold Trust.
Dec. 16, 2015: After meeting at a café, Sprott and Purpose CEOs agree that Sprott can have CGT and in exchange it will cease pursuit of SBT and not impede Purpose in that transaction.
Jan. 15, 2016: CGT unitholders approve mutual fund merger with Sprott by 96 per cent.
