Contingent Value Right | Practical Law

Contingent Value Right | Practical Law

Contingent Value Right

Contingent Value Right

Practical Law Glossary Item 2-501-1177 (Approx. 2 pages)

Glossary

Contingent Value Right

Also known as CVRs or contingent payment rights. A right given to stockholders of a public target company in a merger transaction that entitles them to additional consideration after the closing, either in the form of cash or stock (or a combination of both), when certain payment triggers are met. These payment triggers are typically based on:
  • Certain events (such as achieving a milestone or meeting certain financial performance metrics).
  • The market price of the acquiror's stock (in a merger with stock consideration) to assure the target's stockholders of the value of the consideration over some post-closing period.
CVRs are created by contract and are therefore highly customized instruments for each transaction. The terms of a CVR are typically embodied in a separate CVR agreement, with the form attached as an exhibit to the merger agreement.
CVRs are not often used in public M&A transactions, in part due to their complexity and risks. However, CVRs can be a tool for bridging valuation gaps, especially in relation to a significant contingency. CVRs are more common in pharmaceutical and biotech M&A transactions because of the contingencies related to FDA approval for new drugs.
For a detailed explanation of CVRs, including the most common structures, the key features of a CVR, and the advantages and disadvantages of employing a CVR, see Practice Note, Contingent Value Rights (CVRs).