This article was published on Motley Fool’s Canadian website www.fool.ca where the article can be read in its entirety. However, there are some unique attributes to the deal for investors in the United States which are noted below.
Details of the transaction
- Date announced: May 8, 2013
- Acquirer/Ticker: Sprott, Inc. (Sprott)/(OTC GREY: SPOXF)
- Acquiree/Ticker: Sprott Resource Lending (SRLC)/(NYSE MKT: SILU)
- Compensation: SRLC shareholders to receive 0.5 of a Sprott common share and C$0.15 in cash for each share of SRLC held
- Implied Price/Premium: C$1.65/11.5% on day of announcement
- Expected Closing Date: Early July 2013
U.S. investor considerations
For investors in the United States there are some additional considerations to be considered. Shares of the surviving company, Sprott, do not trade on a major exchange in the U.S. The shares trade on the OTC Grey market and are very thinly traded. According to OTC Markets, the average volume over the last three months was approximately 6,300. Therefore, U.S. investors will be trading their national exchange traded shares of SRLC for the thinly traded grey market shares of Sprott. In addition, the current exchange rate is not beneficial to shareholders in the United States which will negatively impact the cash portion of the deal.
Brief analysis for U.S. investors
For purposes of this analysis we are going to use the Sprott OTC closing price on May 24th of 3.092. Applying the recent exchange rate, the cash portion of the deal should be approximately $0.1455 for U.S. shareholders. Therefore, for each share of SRLC owned, an investor will received 0.5 share of Sprott valued at $1.546 plus cash of $0.1455 placing a current implied acquisition price of $1.6915. Based on the closing price of $1.45 for share of SRLC on May 24th, the transaction currently represents a premium of 16.7%.
Disclosure: The author owned shares of Sprott Resource Lending Corp. at the time this article was published.
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