Sprott Bid Structure Ruled Golden : Targets Lose War over Proxy Battle — Central Gold Trust v. Sprott Asset Management

Canadian take-over bid and proxy solicitation rules were crafted primarily with corporations in mind. This makes sense, since most reporting issuers in Canada are incorporated entities. However, there are also a significant number of Canadian reporting issuers that are organized as trusts. When a hostile takeover bid is made for a publicly-traded trust, key legal and securities regulatory issues become important. Well-settled corporate and securities law rules that facilitate hostile acquisitions of corporations may not always be available for trusts, and so bidders may try to use techniques intended to replicate corporate law techniques in the absence of explicit corporate law provisions. Will the courts and securities regulators permit bidders to do this? This was the central question raised in the Ontario Superior Court of Justice decision in Central GoldTrust v. Sprott Asset Management Gold Bid LP, a dispute which was also the subject of an Ontario Securities Commission (OSC) hearing. In Sprott, the bidder wished to acquire 100% of the outstanding units of two trusts following completion of a hostile bid, without the benefit of either of the well-established methods used for this purpose when the target is a corporation: the corporate law compulsory acquisition provisions and a traditional second- step business combination. The terms of the hostile bids were therefore structured essentially to replicate those corporate acquisition techniques. The deal structure was challenged before the Court and the OSC. The Court and OSC decisions considered the propriety both of the bidder's actions and of certain defensive measures — in particular the Advance Notice Rules — implemented by the trustees of the target trusts. The result of these decisions are analyzed in this case comment and may provide an important playbook for hostile bidders and target directors (trustees) in the future