Friendly Takeover = Sell For Me

Sprott Resource Lending (SILU) is being taken over by what was effectively their manager, Sprott Inc (SII.TO, SPOXF), in a friendly transaction that I’d guess should go through fairly easily and close quickly. The deal will provide SILU shareholders with one half of a share of Sprott Inc. plus 15 cents (Canadian), so with Sprott Inc. at roughly C$3.00 as I type, SILU should be trading at $1.65.

It’s not, which probably reflects some uncertainty about the value of combining two companies that have been in a sustained downtrend for a long time as the commodity cycle, and particularly the health and popularity of junior mining companies, has turned against them. Sprott Inc., the parent, is a substantial money management firm and investment bank in Canada — they specialize in natural resources investment, though they also do lending, private equity, and more generic equities, and they had about $10 billion in assets under management at the end of 2012, though that number has very likely fallen with the continuing decline of gold and most natural resources stocks.

This takeover will probably work out quite well on Sprott’s books over the longer run — they get a substantial portfolio of resource loans, though they lose the management fees that SILU was paying, and the book value of Sprott Inc. will jump considerably (SILU is still trading at a small discount to book, Sprott Inc. at about 1.5X book). It makes some logical sense for the two companies to be combined — but I don’t particularly want to be invested in Sprott Inc. right now, so I will likely sell my remaining SILU shares (I had sold most of those shares back in March). I’ll have to wait three days since I’m writing about the shares now, so we’ll see how it’s trading then and I’ll let you know if and when I sell.

If you have always wanted to be a Sprott Inc. shareholder, well, buying SILU would get you Sprott shares a wee bit cheaper at the moment (it’s pretty fluid) — but Sprott Inc. shareholders don’t seem to like the deal, and instead of SILU rising to match the takeover price Sprott Inc. is falling quite sharply this morning (in the time it took me to type these notes, it went down by more than 5%).

I’m typing this in the moments before the conference ...

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