We have discussed arbitrage situations that include a special kicker in the form of contingent value rights or CVRs several times in the past. The last deal we covered with a CVR was the acquisition of Abiomed by Johnson & Johnson is an all cash deal for $380 and a CVR potentially worth $35. We discussed the opportunity in our November 2022 mid-month update and the deal closed about five weeks after we wrote about it, providing about $6 per share in the arbitrage spread and the CVR.
For investors who are not familiar with CVRs, I discussed them in an article titled May 2022 Mid-Month Update: Merger Arbitrage + Spin-Off Combo Deal:
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,