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In our May 2022 Mid-Month Update for Inside Arbitrage Premium and Plus members, we discussed the acquisition of Biohaven Pharmaceuticals by Pfizer (PFE) and wrote the following about Contingent Value Rights or CVRs,
I love deals that include a contingent value right (CVR) that entitles you to a free or nearly free lottery ticket that pays out in the future based on the target company hitting certain milestones. Every once in a while, the CVR pays out handsomely like it did with Allergan’s acquisition of Tobira Therapeutics or Cerberus’ acquisition of Safeway. There have also been times like United Therapeutics’ (UTHR) acquisition of SteadyMed or Bristol-Myers Squibb’s (BMY) acquisition of Celgene where the CVR did not pay anything. We participated in the Celgene deal as discussed here and it worked out great despite the CVR not paying out. We wrote the following in an article titled Tobira Therapeutics Hits The Jackpot And Provides A Nice Kicker,
I have invested in situations that included a CVR as a kicker, where investors get one or more additional payments in the future if certain milestones are met after the closing of the deal. These kinds of CVRs are often seen in pharma/biotech types of deals where the company being acquired has drugs in their pipeline that could get approved long after the deal has closed. I have also seen CVRs attached to the disposal of real estate in deals such as the acquisition of Safeway by Cerberus Capital Management. I have participated in some of these deals that include CVRs because the merger spread in those deals were sufficient to make the CVR almost free.