What Is a Contingent Value Right (CVR)?

The term contingent value right (CVR) refers to a right often granted to shareholders of a company facing restructuring or a buyout. These rights ensure that the shareholders get certain benefits if a spec💯ific event occurs, usually within a specified time frame.

These rights are similar to options because they frequently have an expiration date, beyond which the rights to the additional benefits will not apply. CVRs are usually related to the performance of a company's stock.

Understanding Contingent Value Rights (CVRs)

A contingent value right is tied to a theorized future event, such as an acquisition. CVRs are created when the two companies in an 澳洲幸运5官方开奖结果体彩网:acquisition come to different conclusions about the value of the target. The acquirer maᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚy feel that the current value of the target is limited with the potential for a higher value. The target, on the other hand, may value itself h🍬igher for any number of reasons, including a new product or technology.

CVRs help bridge the gap between this difference in 澳洲幸运5官方开奖结果体彩网:valuation. An acquiring company can pay less upfront for the acquired company, but if the acqui💟red company hits certain performance targets in the future, its shareholders will receive additional benefits.

These benefits give shareholders additional shares of the acquiring company or they may provide a cash payment. This is often linked if the acquired company's share price drops below a certain price by a predetermined date.

CVRs come with some risks. That's because their real value is not discernible when they are issued. The risk shareholders face remains unknown because these rights are based entirely on the anticipated price of the stock or some unforeseeable occurrence. When CVRs are issued, a portion of the acquirer's risk is transferred to the target company's shareholders. This could have an adverse effect on any existing shareholders, depending on the price paid to acquire the company.

Types of CVRs

There are two ways that a contingent value right may be offered. They may be traded on a stoc🃏k exchangeꦏ or may be non-transferable.

Stock Exchange Traded CVRs

CVRs that ꧋trade on a stock exchange can be bought by anyone, which means they do not have to be current shareholders of the acquired company. An investor can buy a CVR on an exchange up until it expires.

Non-Transferable CVRs

Non-transferable CVRs, on the other hand, apply only to current shareholders of the acquired company and are distributed at the time of the merger. Companies prefer non-transferable CVRs as transferable CVRs listed on an exchange requ🍬ire regulatory work and incur higher cost🌼s.

CVRs As Unsecured Obligations

The New York Stock Exchange (NYSE) Listed Company Manual refers to CVRs as "unsecured obligations of the issuer." An unsecured obligation, also known as 澳洲幸运5官方开奖结果体彩网:unsecured debt, carries no collateral or backing by an underlying asset. Shareholders do not have a guaranteed right that the reward will be granted to them.

While they hold an obligation from a company, investors who receive CVRs are more akin to options holders than to, say, bondholders. Unlike the latter, they have no guarantee to be paid and they have no claim on the company's assets should their payment not materialize.

Just like options, all CVRs have an expiration date. No additional benefit is paid to the shar💫eholder other than t✅he stock itself if the CVR expires.

Example of a CVR

In Feb. 2023, the pharmaceutical company, AstraZeneca, purchased the pharmaceutical company, CinCor. As part of the deal, shareholders of CinCor received non-tradeable contingent value rights, which are payable when the regulatory submission of a baxdrostat product is submitted by a specified time. The value of the CVRs is $1.8 billion.

The Bottom Line

In ♏an acquisition, the goal of CVRs is to bridge the gap between what the acquirer values the company at and what the company being acquired values itself at. As the acquirer believes the value is limited with upside potential in the future, it will provide shareholders with CVRs, which will provide a monetary benefit to shareholders if certain value potent🅠ials are reached.