Sprott seeks takeover of rival bullion fund

The takeover bid, which could turn the firm into a leading bullion fund manager, faces a significant hurdle

Sprott seeks takeover of rival bullion fund
Toronto money manager Sprott has launched a US$3.1-billion takeover bid for Central Fund of Canada Ltd. (CFCL).

Toronto-based Sprott has asked the Court of Queen’s Bench of Alberta to let all shareholders in Calgary-based CFCL vote on a move to exchange their holdings for units in a new company, Sprott Physical Gold and Silver Trust, according to the Globe and Mail. Should shareholders vote in favour of the takeover, Sprott would become a leading bullion fund manager, adding CBCL’s assets under management worth US$3.1 billion to its own AUM of $9.3 billion.

John Ciampaglia, executive vice president at Sprott, told the Globe and Mail that a swap would unlock US$304 million in value through the elimination of a consistent discount to net asset value on CBCL shares. Sprott claims that CFCL stock trades at a discount to the underlying value of the bullion owned by the company because of a “punitive” redemption feature at CFCL, which forces shareholders to redeem stock for physical gold at less than market values. In contrast, said Ciampaglia, Sprott offers attractive rates for investors who redeem units for physical gold, along with a marketing campaign that generates interest and trading liquidity in Sprott’s bullion funds.

Sprott initially went for CBCL in 2015. While it failed to acquire the parent company, it did get 96% approval for a successful $1-billion takeover of Central GoldTrust, another CBCL-run bullion fund.

Any attempt to take over CBCL is made challenging by its dual-share structure. The Spicer family, who founded the company, controls all 40,000 voting common shares. The other 252 million outstanding class A CFCL shares come with no voting rights; CFCL’s notice of its annual meeting in January emphasized that class A shareholders “have no right to participate” if a takeover offer is made for the common shares.

According to Sprott and its lawyers, a takeover bid requires approval from two thirds of all CFCL shareholders to move forward. The Spicer family has declined to sit at the table with Sprott, which owns 1.6 million class A CFCL shares.

“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,” Ciampaglia said.

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