Money manager Sprott Inc. launched a hostile $3.1-billion (U.S.) takeover offer Wednesday for Central Fund of Canada Ltd. (CFCL), the latest battle in Sprott's two-year campaign to unite rival gold and silver bullion funds.
Toronto-based Sprott asked an Alberta court to allow all shareholders in Calgary-based CFCL to vote on a plan that will see their holdings exchanged for units in a new company, Sprott Physical Gold and Silver Trust. If successful, the takeover would make Sprott a leading bullion fund manager, adding $3.1-billion in CFCL's portfolio to the $9.3-billion (Canadian) in assets under management at Sprott.
Sprott executive vice-president John Ciampaglia said in an interview the swap will unlock $304-million in value by eliminating the consistent discount to net asset value on CFCL shares, a discount that was at 9 per cent when the Toronto Stock Exchange closed on Tuesday. Units in Sprott's bullion funds consistently trade at or above their net asset value.
Sprott took an initial run at CFCL in 2015, and while it failed to acquire the parent company, Sprott did receive 96-per-cent approval for a successful $1-billion hostile takeover of Central GoldTrust, another bullion fund run by CFCL. Taking over CFCL presents significant legal challenges, as the parent company has a dual-share structure.
Taking over CFCL presents significant legal challenges, as the parent company has a dual-share structure. There are 40,000 voting common shares, and these are controlled by the Spicer family, who founded the company, along with 252 million outstanding Class A CFCL shares, with no voting rights. Investors paid CFCL management $6.2-million (Canadian) in fees last year for running bullion funds.
CFCL's notice of its annual meeting, filed in early January, specifically states that Class A shareholders "have no right to participate" if a takeover offer is made for the common shares – the line is printed in bold font.
The Spicer family has declined to negotiate with Sprott, Mr. Ciampaglia said. Stefan Spicer, the CEO of CFCL, and lawyers for the firm did not return phone calls seeking comment on the Sprott offer.
Sprott is asking the Court of Queen's Bench of Alberta to allow Class A and common shareholders in CFCL to vote on its offer as one group. The bid requires approval from two-thirds of all CFCL shareholders to go forward, according to Sprott and its lawyers at Stikeman Elliott LLP and Burnet Duckworth & Palmer LLP.
Sprott owns 1.6 million CFCL Class A shares and Mr. Ciampaglia said: "Many large investors have expressed to us, a fellow CFCL shareholder, that there is a real need for change and that they support the effort we are initiating today."
Lawyers familiar with this case say the Alberta court may allow all CFCL shareholders to vote on Sprott's bid, which is being done as what is known as a plan of arrangement, because the offer is being made to all shareholders, rather than favouring owners of CFCL voting stock.
Sprott claims that CFCL stock consistently trades at a discount to the underlying value of the bullion it owns because CFCL employs a "punitive" program if they want to redeem their shares for cash. Mr. Ciampaglia said that in contrast, Sprott offers investors attractive rates when they redeem units, along with a marketing campaign that generates interest and trading liquidity in Sprott's bullion funds.