Lexpert Magazine

LEXPERT MAGAZINE | JULY/AUGUST 2016 41 | ART OF THE DEAL | ful 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 unso- licited 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 le 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 "It was a clever move," grants Einav. It set up a situation, he explains, where the Spic- ers' 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. at was something no one had ever tried before in Canadian M&A history. "It add- ed an extra layer of complexity to what we needed to deal with on a Wednesday morn- ing," says Einav. e 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, Pur- pose Investments had just offered to take over as the Spicers' manager and trustee of SBT and CGT and convert both to Pur- pose 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. e Spicers and Seif are splitting the fees on SBT and the Central Gold Trust ve- hicle has been rolled into the Sprott Gold Fund. e 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. ey could do that on or aer November 19 via written resolution if more than 50 per cent of outstanding units were ten- dered to Sprott offers. e unitholders at Central Gold did just that, and, on Dec. 7, Sprott changed all the board members ex- cept one. at 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: "e three targets won four of the five contests, two success- hit a final bump — an unexpected insur- ance 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 Administra- tion at Sprott, in an email. "However, due to insurance regulations on the maximum value allowed to be transported in one ve- hicle, 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 kilo- metres 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." Anthony Davis is a freelance business and investigative writer based in Calgary. 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.

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