Lexpert Magazine

38 LEXPERT MAGAZINE | JULY/AUGUST 2016 ed off Polar's proxy contests three months aer 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. ey 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 watch- ing 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 mak- ing a bid, recounts Einav. It wasn't hard for Sprott to sniff out la- tent 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 sig- nificantly advanced Sprott's standing in the physical bullion trust sector, giving it the opportunity to manage the funds better. On May 27, 2015, aer creating Asset Management Gold Bid LP and Sprott As- set 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 ten- dered, the execution of a Letter of Trans- mittal (LoT) would give Sprott Power of Attorney (PoA) to, among other things, remove most SBT and CGT trustees and replace them with Sprott-appointed direc- tors. is 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. is one proved thornier than most. "We don't think this had ever been done before, where an invest- ment fund made a hostile bid for another investment fund. So there was no compari- son to look at." at first-of-a-kind quality would attract scrutiny from regulators, Ciardullo adds: "e first thing we had to get through – and we knew this was coming – was the fact that both the Ontario Securities Com- mission and the SEC had a myriad of ques- tions about what we were doing because it was novel." At early stages of the bid, Sprott's legal team answered heaps of ques- tions from those regulatory bodies. Secondly, CFOC, in its proxy contest with Polar, had proven particularly tena- cious. irdly, 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 — oen 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 e 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 implica- tion for the targets' Canadian and Ameri- can unitholders. Sprott needed to create an innovative structure so its bid could happen on a tax-deferred basis and unit- holders could avoid getting dinged when tendering to Sprott. at 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 struc- turing 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 transac- tion. To some degree, the transaction struc- ture 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 liing, 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 confi- dent would work," says Ciardullo. Laffin created a deal structure that would with- stand the inevitable intense scrutiny. Nasty Business Having kicked Polar to the curb, the Spic- ers' 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 Trust- ees, with Dentons in support. A first order of business for Staley was explaining to Stefan Spicer and his trust- ees 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 unpleas- ant and something you sort of have to | ART OF THE DEAL | "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." JOHN CIARDULLO > STIKEMAN ELLIOTT LLP

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