Author Topic: What happens during a merger/takeover?  (Read 2034 times)

Posthumane

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What happens during a merger/takeover?
« on: January 21, 2016, 09:53:20 AM »
A part of my portfolio is in gold, and I've been holding units of GTU.UN (central gold trust on TSX, in $CAD) in one of my accounts. I checked my portfolio on Google finance this week and found that it was way down, a lot more than I would have expected even with the recent market plummet. Upon closer inspection it was showing my gold trust to be worth 0, which seemed a bit odd. That's when I found out that it had been taken over by sprott physical gold trust. I hadn't had any mergers or takeovers in my portfolio before, so I'm curious how they work for the shareholders.

Apparently I should be getting around 4.4 units of sprott (PHY.U) for every unit of GTU. However, PHY.U trades in US dollars, same as GTU.U, but GTU.UN is in Canadian dollars. Are they simply going to assume 1 unit of GTU.UN is the same as one unit of GTU.U, and my new holdings will be in US dollars? Does it all happen automatically without my input? My broker site is still showing me holding GTU.UN but the market price is frozen at a price from several weeks ago.

dungoofed

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Re: What happens during a merger/takeover?
« Reply #1 on: January 21, 2016, 05:04:18 PM »
There should be (several) notices about how the transfer is going to take place, and shareholders have several options. Without looking into it my guess would be that there is a "do nothing" option which will give you a slight benefit overall, based on the USDCAD rate, the prices of the two companies, and possibly the USDCAD rate.

Posthumane

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Re: What happens during a merger/takeover?
« Reply #2 on: January 25, 2016, 10:36:26 AM »
It appears that you are correct dungoofed, since I did nothing and ended up with PHY.U in my account, in the expected proportion (about 4.4:1 for GTU.UN).

marty998

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Re: What happens during a merger/takeover?
« Reply #3 on: January 25, 2016, 02:23:40 PM »
There are tax consequences and this process may trigger a capital gain event.

In Australia the Tax Office puts out rulings for how to treat specific mergers, demergers, takeovers and other corporate transactions. In some cases you have the "scrip-for-scrip" rollover option which allows you to ignore your gain for tax purposes and your new shares take on the cost base of your old shares. This option is generally not available to international holders, because international holders are generally are not permitted to receive scrip - as it is too expensive for the acquiring company to issue prospectuses and documents complying with all regulators around the world. They receive cash instead in most cases, so no opportunity for tax deferral.

Check with your accountant or your tax authority for further information.

(Edited for typo - scrip-for-scrip)
« Last Edit: January 25, 2016, 09:39:13 PM by marty998 »

Posthumane

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Re: What happens during a merger/takeover?
« Reply #4 on: January 25, 2016, 08:07:03 PM »
Thanks for the information marty. In this case the fund is held in a tax advantaged account (Canadian TFSA*) so there shouldn't be any issues with capital gains, but the info is good to have on hand as I'm sure this won't be the last time I see this.


* I know that a TFSA isn't the best place to have a gold fund, but it was part of a permanent portfolio that was entirely split between my TFSA and RRSP. Once I run out of room in those I will probably put the gold in a taxable account.