Contingent value rights

Short description: Buyer's rights in corporate finance

In corporate finance, Contingent Value Rights (CVR) are rights granted by an acquirer to a company’s shareholders,[1][2] facilitating the transaction where some uncertainty is inherent. CVRs may be separately tradeable securities;[3] they are occasionally acquired (or shorted) by specialized hedge funds.[4]

## Contents

* 1 Forms
* 2 Valuation
* 3 See also
* 4 References
* 5 External links

## Forms

These rights typically take either of two forms:[5] (1) Event-driven CVRs compensate the owners for yet to eventuate positive developments in their business - hence protecting the acquirer against the valuation risk inherent in overpaying. (2) Price-protection CVRs are granted when payment is share based \- protecting the acquired company, by providing a hedge against downside price risk in the acquirer's equity.[6]

In the first case, CVRs are granted[3] in scenarios in which the acquiring company does not wish to pay for a product that might not work, has a limited market, or might need significant investment;

In the second case, protection against price risk is facilitated by specifying that payment will be made at an averaged, as opposed to final, share price; a floor may also be set.[7]

## Valuation

Under both, the CVR is in function, a form of option.[8]

The first case: analogous to a call option, the payout to the CVR holder will be triggered by the event occurring, and will be zero otherwise. To determine the value of these rights, analysts will apply a modified option pricing model based on the probability of the event, the time horizon specified, and the corresponding payout rules; see Contingent claim valuation, Real options valuation, and Mergers and acquisitions § Business valuation.[9]

The second: the CVR takes the form of a modified Asian option.[6]

## See also

* Strip financing
* Hold-up problem
* Earnout

## References

1. ↑ Investopedia (2020). Contingent Value Right (CVR)
2. ↑ "Contingent Value Rights". https://content.next.westlaw.com/Glossary/PracticalLaw/I0fa00c25ef0811e28578f7ccc38dcbee?contextData=(sc.Default)&transitionType=Default.
3. ↑ 3.0 3.1 Motley Fool (2018). What Is a Contingent Value Right?
4. ↑ See for example this prospectus as filed with the SEC.
5. ↑ Thomson Reuters (2019). Contingent Value Rights (CVRs), Practical Law series
6. ↑ 6.0 6.1 Sris Chatterjee (2003). Contingent Value Rights in Acquisitions: Theory and Empirical Evidence, EFA 2003 Annual Conference Paper No. 897
7. ↑ SEC (2006). Questions and Answers For Contingent Value Rights Holders
8. ↑ Jan W Dash (2004). Quantitative Finance and Risk Management: A Physicist's Approach, World Scientific. ISBN 978-9812387127
9. ↑ Aswath Damodaran (ND). Valuation: Approaches & Discounted Cash Flow Models

## External links

* CVR on Investopedia
* CVR on Motley Fool
* Shadowy Shares: The Dark Side of Contingent Value Rights, Forbes.com (Michael Stocker, Iona Evan. 2011)

* v
* t
* e

Corporate finance and investment banking

Capital structure|

* Convertible debt
* Exchangeable debt
* Mezzanine debt
* Pari passu
* Preferred equity
* Second lien debt
* Senior debt
* Senior secured debt
* Shareholder loan
* Stock
* Subordinated debt
* Warrant

Transactions
(terms/conditions)|

| Equity offerings|

* At-the-market offering
* Book building
* Bookrunner
* Bought deal
* Bought out deal
* Corporate spin-off
* Equity carve-out
* Follow-on offering
* Greenshoe
* Reverse
* Initial public offering
* Private placement
* Public offering
* Rights issue
* Seasoned equity offering
* Secondary market offering
* Underwriting

|

Mergers and
acquisitions|

* Buy side
* Control premium
* Demerger
* Divestment
* Drag-along right
* Management due diligence
* Managerial entrenchment
* Minority discount
* Pitch book
* Pre-emption right
* Proxy fight
* Post-merger integration
* Sell side
* Shareholder rights plan
* Special-purpose entity
* Special situation
* Squeeze-out
* Staggered board of directors
* Stock swap
* Super-majority amendment
* Tag-along right
* Takeover
* Reverse
* Tender offer

Leverage|

* Debt restructuring
* Debtor-in-possession financing
* Financial sponsor
* Leveraged buyout
* Leveraged recapitalization
* High-yield debt
* Private equity
* Project finance

Valuation|

* Accretion/dilution analysis
* Adjusted present value
* Associate company
* Business valuation
* Conglomerate discount
* Cost of capital
* Weighted average
* Discounted cash flow
* Economic value added
* Enterprise value
* Fairness opinion
* Financial modeling
* Free cash flow
* Free cash flow to equity
* Market value added
* Minority interest
* Modigliani–Miller theorem
* Net present value
* Pure play
* Real options
* Residual income
* Stock valuation
* Sum-of-the-parts analysis
* Tax shield
* Terminal value
* Valuation using multiples

* List of investment banks
* Outline of finance

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