GTU and PHYS takover offer

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FNK
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GTU and PHYS takover offer

Post by FNK » Tue Jun 16, 2015 6:35 pm

Hey folks,

I have a few Central GoldTrust shares (GTU) in my Vanguard Roth IRA account, and it looks like Sprott (PHYS) is trying to take over the whole operation (here's a fighting piece from GTU: http://finance.yahoo.com/news/central-g ... 12909.html).

I got an offer to exchange the GTU shares for PHYS on a nebulous "NAV-for-NAV" basis. GTU has been trading at a serious discount for a long time, and PHYS tracks NAV pretty closely. Vanguard sent me another letter that felt like telegraphing "dude, wake up".

I'd like to get out of gold ETFs altogether, so it seems that doing the exchange and immediately selling is a valid idea.

I wonder why nobody's piling on to arbitrage away the discount.

What do you think?

Tanelorn
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Re: GTU and PHYS takover offer

Post by Tanelorn » Wed Jun 17, 2015 10:44 am

You can read the other side of the arguments from management:

http://www.marketwired.com/press-releas ... 029840.htm

Yes, GTU has a worse discount now (although traded at a 5-10% premium until the last year or two). Sprott is a slick salesman without your interests at heart either.

I also think there's no way Sprott can get the votes for the merger against the management opposition, so arguably it doesn't matter what you do, although it'll probably take six months of arguing for that to be finalized.

If it were me, I'd sell now and be done.

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Re: GTU and PHYS takover offer

Post by Call_Me_Op » Wed Jun 17, 2015 10:49 am

FNK wrote:
I'd like to get out of gold ETFs altogether...
May I ask why?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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ivyhedge
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Re: GTU and PHYS takover offer

Post by ivyhedge » Wed Jun 17, 2015 11:17 am

These are both closed end: not technically ETFs (GTU is a closed end fund; PHYS is a closed end trust that behaves similarly to an ETF like IAU in the short term, but not in the long term).

If you do not want anything to do with either, sell and call it a day. :beer
Polymath.

FuzzyButtons
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Re: GTU and PHYS takover offer

Post by FuzzyButtons » Wed Jun 17, 2015 2:13 pm

Tanelorn wrote:You can read the other side of the arguments from management:

http://www.marketwired.com/press-releas ... 029840.htm

Yes, GTU has a worse discount now (although traded at a 5-10% premium until the last year or two). Sprott is a slick salesman without your interests at heart either.

I also think there's no way Sprott can get the votes for the merger against the management opposition, so arguably it doesn't matter what you do, although it'll probably take six months of arguing for that to be finalized.

If it were me, I'd sell now and be done.
As a GTU holder, I've been receiving the same mailings. My impression is that Sprott is trying to make a quick buck with some arbitrage here. I have no interest in selling. The discount/premium has been working in my favor. In times when gold is up it's at a premium, and those are the times I'm rebalancing out. In times when gold is trending down it's at a discount, and those are the times I'm rebalancing back in. I'm going to hold some gold equivalents anyway; I just consider this to be a little extra "juice" to the swings.

But I'm not above admitting that I'm new to this. So I'd really be interested to hear your reasoning behind selling. Are you advocating switching to an ETF like GLD that has less tracking error? Or are you expressing the sentiment that gold should not be part of a portfolio at all?

Tanelorn
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Re: GTU and PHYS takover offer

Post by Tanelorn » Wed Jun 17, 2015 2:56 pm

FuzzyButtons wrote:My impression is that Sprott is trying to make a quick buck with some arbitrage here.
No, Sprott is just trying to take over an extra $850M in assets for his business and charge everyone 0.5% indefinitely. Of that, 0.35% is management costs for Mr. Sprott's excellent marketing services, while about 0.1% goes to storing the gold and the rest is taxes or something. $3M/year in extra management fees justifies more than a few shareholder solicitations and ... embellishments... of the merits of the merger.

Fuzzy - good point about the premium / discount being sentiment driven and favorably correlated with your rebalancing trades. That's a good reason to keep GTU.

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Re: GTU and PHYS takover offer

Post by FuzzyButtons » Wed Jun 17, 2015 3:08 pm

Tanelorn wrote:
FuzzyButtons wrote:My impression is that Sprott is trying to make a quick buck with some arbitrage here.
No, Sprott is just trying to take over an extra $850M in assets for his business and charge everyone 0.5% indefinitely. Of that, 0.35% is management costs for Mr. Sprott's excellent marketing services, while about 0.1% goes to storing the gold and the rest is taxes or something. $3M/year in extra management fees justifies more than a few shareholder solicitations and ... embellishments... of the merits of the merger.

Fuzzy - good point about the premium / discount being sentiment driven and favorably correlated with your rebalancing trades. That's a good reason to keep GTU.
Thanks for pointing out the expense ratio differences between the two. That is something I want to keep an eye on. Thanks also for correcting my missunderstanding about the purpose of the offer.

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Re: GTU and PHYS takover offer

Post by Tanelorn » Wed Jun 17, 2015 3:16 pm

PHYS charges about 0.5%
GTU charges about 0.37%

It is worth noting that the Sprott offer, should it succeed, would indeed close the discount and earn GTU holders about a 6% excess return. However, you'd then be stuck in a more expensive vehicle that doesn't trade very far from NAV. The former is bad, the latter could go either way depending on your investment style. There will probably also be tax issues for the merger, sounded like even the parties involved weren't sure, but most gold investors have losses at this point so being forced to realize them might not be a bad thing.

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Re: GTU and PHYS takover offer

Post by Call_Me_Op » Thu Jun 18, 2015 6:47 am

Has anyone ever filled-out the tax form for GTU or PHYS that allows gains to be taxed as capital gains rates? I am wondering if this is an uncomplicated process.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

FuzzyButtons
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Re: GTU and PHYS takover offer

Post by FuzzyButtons » Thu Jun 18, 2015 8:20 am

Call_Me_Op wrote:Has anyone ever filled-out the tax form for GTU or PHYS that allows gains to be taxed as capital gains rates? I am wondering if this is an uncomplicated process.
I only hold shares within my IRA, specifically so that I can avoid the paperwork needed for tax filings. GTU at least is a Passive Foreign Investment Company according to the IRS, requiring the filing of form 8621 if held in a taxable account. I'm sure PHYS is the same way.

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Re: GTU and PHYS takover offer

Post by Call_Me_Op » Thu Jun 18, 2015 8:25 am

FuzzyButtons wrote:
Call_Me_Op wrote:Has anyone ever filled-out the tax form for GTU or PHYS that allows gains to be taxed as capital gains rates? I am wondering if this is an uncomplicated process.
I only hold shares within my IRA, specifically so that I can avoid the paperwork needed for tax filings. GTU at least is a Passive Foreign Investment Company according to the IRS, requiring the filing of form 8621 if held in a taxable account. I'm sure PHYS is the same way.
Indeed. But I have read that the IRS can make life difficult for folks who make the slightest error in this process. It seems as though they somehow resent giving PFICs this special treatment.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

Tanelorn
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Re: GTU and PHYS takover offer

Post by Tanelorn » Tue Jun 23, 2015 4:29 pm

The first of many likely extensions in the Sprott offer, given they haven't been able to get sufficient interest to make the deal actually happen:

http://globenewswire.com/news-release/2 ... Trust.html

Tanelorn
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Re: GTU and PHYS takover offer

Post by Tanelorn » Wed Jul 01, 2015 5:26 am

Second extension and some good rhetoric:

http://www.sec.gov/Archives/edgar/data/ ... _77425.htm

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Re: GTU and PHYS takover offer

Post by abuss368 » Wed Jul 01, 2015 6:23 am

Why not simply sell today?
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Re: GTU and PHYS takover offer

Post by Tanelorn » Thu Jul 02, 2015 8:49 pm

This gets better and better. Here's the lawsuit from GTU enjoining Sprott from continuing their hostile offer:

http://finance.yahoo.com/news/central-g ... 53383.html
As previously announced, in its court application, CGT claims that (i) Sprott's hostile bid fails to comply with the advance notice rule recently adopted by CGT; (ii) the hostile bid constitutes an illegal proxy solicitation; (iii) the hostile bid breaches statutory rights of withdrawal under applicable take-over bid rules; and (iv) Sprott has breached its obligations to disclose its joint actions with Polar Securities Inc. and Pekin Singer Strauss Asset Management, Inc. CGT seeks an order enjoining Sprott's hostile bid. CGT also seeks an order that recently adopted amendments to the Declaration of Trust of CGT (as described in CGT's news release of June 24, 2015) were validly made and are binding on Sprott.


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Re: GTU and PHYS takover offer

Post by Tanelorn » Thu Aug 13, 2015 9:31 pm

I know you guys think owning IAU is the cheap gold alternative at only 0.25% ER, but look at the quality of rhetoric you get from Sprott for 0.5%!

http://money.cnn.com/news/newsfeeds/art ... 146079.htm
"It is unfortunate that the Alberta Court has ruled that the requisition by Class A shareholders of CEF was invalid on technical grounds. While Sprott strongly disagrees with this ruling and is considering its options, the next step for Class A shareholders is whether CEF's Special Committee and its Board chooses to cancel its currently scheduled special meeting of Class A shareholders and deny them the opportunity to express their desire for change of the Spicer-controlled administrator marked by conflicts and mismanagement. Cancelling a meeting requested by a significant number of Class A shareholders representing more than 15 million of the outstanding Class A shares of CEF would only highlight the conflicts and the Board's commitment to ensuring that the Spicer-controlled administrator continues to receive fees while all other stakeholders are forced to endure persistent underperformance and value destruction."

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Re: GTU and PHYS takover offer

Post by TO39 » Tue Jan 19, 2016 10:09 pm

any thoughts now? I think Sprott was successful

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Re: GTU and PHYS takover offer

Post by LadyGeek » Tue Jan 19, 2016 10:18 pm

TO39 - you had a duplicate post which I deleted. There were no replies.
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Re: GTU and PHYS takover offer

Post by ogrehead » Tue Jan 19, 2016 10:24 pm

Just follow your instinct to sell and get rid of this immediately. Not only are you paying money to store an extremely volatile commodity with no cash flow and no real expected return above inflation, if you hold on you may end up paying for this litigation as well.

TO39
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Re: GTU and PHYS takover offer

Post by TO39 » Tue Jan 19, 2016 10:24 pm

thanks lady geek, I still ,get confused about all this

Tanelorn
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Re: GTU and PHYS takover offer

Post by Tanelorn » Wed Jan 20, 2016 7:44 am

RIP to GTU, shares will be exchanged for PHYS shortly.

http://finance.yahoo.com/news/central-g ... 00760.html

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