Pan American/ MAG Silver -- summary under Shares for Shares and Nominal Cash, or Cash
Background
The MAG shareholders have approved an acquisition of MAG by Pan American pursuant to a BC plan of arrangement.
Each MAG shareholder was given the choice of electing to receive either the “Cash Consideration” of US $20.54 per MAG share, or the (Pan American) “Share Consideration” which, in order to avoid the application of s. 85.1, included a nominal cash component of US $0.0001 per MAG share. However, this was subject to a requirement that the aggregate consideration be fixed at US $500,000,000 in cash, with the balance in Pan American shares. In fact, only around 1.71% of the MAG shares elected to receive the Cash Consideration election, so that the balance of the shares, subject to the Share Consideration option will, in fact, receive around US $4.56 per share in cash.
“Eligible Holders” (generally, Canadian taxable investors) receiving the Share Consideration will be permitted to make a joint election under ITA s. 85(1) with Pan American, provided that they submit their duly signed and completed election form to Pan American within 60 days after the effective date of the Arrangement.
MAG
MAG is a British Columbia corporation focused on advanced precious metal projects. It has a 44% minority interest in the Juanacipio mine in Mexico, which is operated by its joint venture partner, Fresnillo plc, which owns the remaining 56% interest. The MAG shares are traded on the TSX and the NYSE American. There are approximately 103.5 million MAG shares outstanding. After giving effect to the acquisition of the MAG shares, the former MAG shareholders would hold approximately 14% of the MAG shares. No major MAG shareholders are disclosed.
Pan American
Pan American is a British Columbia corporation whose shares are listed on the NYSE and the TSX. Its most material mines are located in Mexico, Peru, Brazil, Chile, and Guatemala.
Consideration and Election
MAG shareholders are provided with an election under which they have the option to receive either:
US $20.54 in cash for each MAG share held (the “Cash Consideration”); or
US $0.0001 in cash and 0.7055 of a Pan American share for each MAG share held (the “Share Consideration”);
subject to proration such that the aggregate consideration paid to all shareholders consists of US $500,000,000 in cash, with the remaining consideration paid in Pan American shares.
Pursuant to an August 28, 2025 press release, MAG announced that, based on a preliminary tally:
Shareholders holding 1.71% of the outstanding MAG shares had elected to receive the Cash Consideration;
Shareholders holding 30.55% of such shares had elected to receive the Share Consideration; and
Shareholders holding approximately 67.74% of such shares did not make an election (so that they were deemed to have elected for the Share Consideration). Accordingly, with proration, those receiving Share Consideration would receive Cash Consideration of around US$4.56 per MAG share.
BC Plan of Arrangement
- Each MAG DSU, PSU, and RSU outstanding immediately before the effective time of the Arrangement (the “Effective Time”) will be deemed to be transferred to the Company for a cash payment equal to the Cash Consideration (US$20.54 per MAG share), less applicable withholding taxes.
- Each MAG option outstanding immediately prior to the Effective Time, whether vested or unvested, shall be deemed to be vested and exercisable and will be assigned to the Company in exchange for a cash payment equal to its in-the-money value.
- Each MAG share held by a dissenting shareholder will be deemed to be transferred to Pan American in consideration for a debt claim in an amount determined under the Arrangement.
- Concurrently with the steps below and subject to proration, each MAG share for which the shareholders elected Cash Consideration will be deemed to be transferred to Pan American in consideration for the Cash Consideration.
- Each MAG share for which the shareholders elected Share Consideration, or for which no timely election was made, will be deemed to be transferred to Pan American in exchange for the Share Consideration.
Canadian Tax Considerations
The exchange of the MAG shares for Cash Consideration or Share Consideration will occur on a non-rollover basis, except to the extent that an election under subsection 85(1) of the Income Tax Act is made by an Eligible Holder where there is Share Consideration.
Any s. 85(1) election form must be provided in completed and signed form to Pan American within 60 days after the Effective Date of the Arrangement. Pan American shall, within 30 days of receiving the completed joint election form, return it to an eligible holder.
An Eligible Holder is a person other than a partnership that is a resident of Canada other than a Tax-Exempt Person (i.e., exempt from tax under Part I of the ITA) or a partnership any member of which is a resident of Canada for ITA purposes (other than a Tax-Exempt Person).
US Tax Considerations
The exchange of the MAG shares will not occur on a non-recognition basis. MAG is believed to have been a PFIC for its taxable years prior to 2020.