Why Sprott’s takeover attempt could be a game-changer

Why Sprott’s takeover attempt could be a game-changer

Why Sprott’s takeover attempt could be a game-changer Money manager Sprott has asked for a special ruling from an Alberta court to take over rival bullion fund Central Fund of Canada Ltd. (CFCL). While the motion is a long shot, a finding in Sprott’s favour could change the legal landscape for Canadian companies with dual-share-class ownership.

The crux of the case lies in the division of shares in CFCL. The fund’s founding family, the Spicers, owns 40,000 common shares in the company, while outside shareholders own 252 million Class A shares with no voting rights, according to the Globe and Mail. This has given the Spicers the power to unilaterally rebuff repeated buyout attempts from Sprott for the past two years.

In its latest attempt, Sprott — through its lawyers at Stikeman Elliott and Burnet Duckworth — has asked the Court of Queen’s Bench of Alberta to give owners of non-voting CFCL shares the right to vote on a US$3.1-billion buyout offer. A decision favouring Sprott would be unprecedented and unlikely, according to lawyers following the deal, since the court would effectively be stripping company control from shareholders with voting rights.

“This is nothing more than a hostile attempt to take over management of Central Fund and its property,” said CFCL CEO Stefan Spicer in a statement last week, noting that it the offer utilizes “Alberta corporate legislation in a manner contrary to the accepted practice … which is generally a consensual agreement between willing parties.”

Still, there is hope for the motion, given a judicial decision on another takeover bid last year. The Yukon Court of Appeal blocked a planned $2.3-billion takeover of InterOil despite 80% shareholder approval for the deal. While the deal eventually pushed through, the court decision continues to influence bankers’ views on fairness opinions regarding such transactions.

With 1.6 million CFCL Class A shares, Sprott is already a significant stakeholder in the rival firm. Sprott Executive Vice President John Ciampaglia has said that the takeover efforts are supported by other CFCL shareholders, who said that “there is a real need for change.”


Related stories:
Sprott seeks takeover of rival bullion fund
CIBC vows ‘disciplined’ assessment of pending takeover
 
2 Comments
  • PointySideUp 2017-03-21 10:41:00 PM
    CEF has been a poor investment because of the share structure and Spicer's control. It's time to end it once and for all.
    Post a reply
  • Peter Zember 2017-07-28 3:10:45 PM
    It seems odd that the fund litigation be required.
    The structure makes for a no say vote thing.
    The fund has good share volume,focus.
    The suit does raise concerns that are genuine concerns.
    Post a reply