Sprott CEO John Wilson
There's a new twist in the saga surrounding Sprott Asset Management's takeover bid for Central GoldTrust and Silver Bullion Trust.
The bidding began in April when Sprott launched a takeover offer worth $898-million (U.S.) for the funds, which are controlled by the Spicer family of Ontario. The fund's trustees recommended June 9 that unitholders reject the bid.
Sprott now says that three days before it made its bid, the financial adviser to the special committee of trustees for both funds approached Sprott asking about the fund manager's potential interest in a deal. That gave Sprott the impression the funds were open to a management change. But in the end, the board rejected the idea.
"It's particularly strange when they [trustees] come out and say we're not qualified to run these trusts," said John Wilson, Sprott's chief executive officer. "Apparently we're qualified to bid for them, but not qualified to have the unitholders decide who they would rather have manage their assets."
Who the financial adviser was and what the financial details were have not been disclosed.
The special committee said that the Sprott offer was "opportunistic" and "not in the best interests" of the trusts' unitholders. D.F. King, the trusts' information agent, reiterated in an e-mail to The Globe and Mail that the board has "unanimously recommended that unitholders reject the opportunistic Sprott offer."
This revelation comes amid renewed support for a Sprott deal by the largest unitholder in Central GoldTrust, Pekin Singer Strauss Asset Management, which owns 1.2 million units and issued a statement Friday expressing discontent with the trustees' rejection of the Sprott bid.
"As Central GoldTrust's largest unitholder, we're disappointed that the [fund's] trustees have so quickly dismissed the Sprott offer," the statement said.
Sprott contends that the funds are not advertised properly, part of the reason why they trade well below their net asset value, or NAV, or below the value of the underlying metal. It also added that the funds' redemption feature does not allow for the trading of the units for the physical metal.
Sprott is recommending a more liquid way of redeeming the assets, which would allow unitholders to trade in the units for the physical precious metal, stored at the Royal Canadian Mint. This, according to Mr. Wilson, would minimize the trading gap and allow the assets to better trade for their intrinsic value.
"We're offering those unitholders [of Central GoldTrust and Silver Bullion Trust] to trade at NAV into our units," Mr. Wilson said in an interview. "We would give them our units at NAV, they can do that exchange tax-free, they'd end up running a unit that trades consistently at our NAV and trades at a lot more volume."
Central GoldTrust says on its website that the Sprott offer "does not provide any meaningful premium" and that exchanging its units for Sprott's would "involve higher costs, increased tax risks and reduced governance rights."
Both trusts are run out of Ancaster, Ont., by the Spicer family, led by chief executive officer and chairman Stefan Spicer. The Spicer family could not be reached for comment.
If its bid is successful, Sprott plans to merge the units into its own similarly designed funds; Sprott Physical Gold Trust and Sprott Physical Silver Trust.
The trusts were already subject to a proxy contest earlier this year from Toronto-based Polar Securities, a hedge fund that, like Sprott, had pushed for the trusts to change their redemption feature so as to narrow its trading discounts. However, Polar Securities' proxy campaign was chilled when proxy advisory firm Institutional Shareholder Services recommended that unitholders vote in favour of Central GoldTrust's trustee nominees and reject Polar's amendments.
Sprott said that relative to NAV, it would unlock $3.06 per unit in value for Central GoldTrust's unitholders, $0.91 per unit in value for Silver Bullion Trust unitholders and $64-million in aggregate value, based on the offers it made when it announced the takeover attempt on April 23.
At the end of trading on Monday, Central GoldTrust was trading at a 6.4-per-cent discount to NAV on the Toronto Stock Exchange.
Meanwhile, Mr. Wilson said Sprott has been advertising its own products around the world, including online and at road shows.
"[If] for whatever reason you want to sell, you need to have someone out there doing that so that there's someone out there looking to buy your unit," Mr. Wilson said.
"Otherwise, you end up having to sell your unit at an atrocious discount, which is what's been happening with [the funds' corporate entity] Central Fund."