M&A deals in limbo

Judging from the way two planned takeovers — a merger of two physical bullion funds and the acquisition of an oil and gas company with interests in Latin America — are progressing, the legendary New York Yankees catcher Yogi Berra was right: it ain’t over ‘til its over. Indeed, even when it’s over it may not be over.

Thursday the latest opposition to the deals — the plan by Sprott to merge its gold and its silver fund with their counterparts at Central Fund and the friendly purchase of Pacific Rubiables by Alfa and Harbour Energy — played out and not necessarily to the benefit of the two potential acquirers. Clearly we are still in the middle innings.

In the first case, Sprott — which upped the ante earlier this week when it called for a meeting of the non-voting shareholders at Central Fund to vote on the external management contract for the two physical bullion funds, to give the Class A shareholders a vote and to elect the Sprott nominees — received an answer it was probably expecting.

“The Board is in the process of considering the requisition, including its validity and whether the matters sought to be put before the special shareholders’ meeting are proper items to be voted upon by holders of Class A non-voting shareholders,” it said. In short, thanks but no thanks.

Sprott’s plans to merge its two bullion funds with two equivalent Central funds may have greater success: the merger is expected to bring an immediate benefit to holders of the two Central funds.

John Wilson, Sprott’s chief executive, said Thursday “we haven’t run into anybody who doesn’t think this is a good idea.” Its offer expires on July 6.

In the second transaction, O’Hara Administration — whose members are the largest shareholder group owning 19.82 per cent of Pacific Rubiales — filed a dissident proxy circular, a day after officially declaring its hand.

“Fellow minority shareholders urged to vote against the proposed arrangement,” it said Wednesday.

On Thursday, it issued a 36-page circular, and gave its reasons for rejecting Alfa and Harbour’s $6.50-ashare offer: the price “does not represent the maximum price attainable;” it doesn’t reflect the company’s longterm value and the price is below the valuation provided by the company three months back. It also noted the high termination fee: at US$100 million, it’s 5.94 per cent of the transaction’s equity value — more than double the norm. It said insiders stand to receive $116 million in payments.

Before this the market was musing about O’Hara’s motives because some of its members recently bought more shares at prices close to the $6.50 being offered.

Now things are clear: it doesn’t like the deal, it doesn’t like the process Pacific Rubiales went through (it didn’t conduct a full auction) and it doesn’t like the valuation approach of GMP Securities, the firm retained by the special committee, arguing it was too limited in scope. Indeed given the links between GMP and Pacific Rubiales, O’Hara wonders whether the “independent committee should have retained GMP Securities as its “independent” valuator. O’Hara laid out a strategy that includes new directors, and a four-part value optimization plan for the meeting to be held on July 7. Late Thursday Pacific Rubiales brought a court action designed to block some of the O’Hara shares being voted.