The contingent value right (CVR) doesn’t come up in mergers and acquisitions often. When it does, it typically is found in pharmaceutical transactions, though not among publicly-traded companies. Celgene Corporation’s $2.9 billion acquisition of Abraxis BioScience Inc., announced Wednesday, is one of the few exceptions, thanks to the efforts of Abraxis lead counsel Philip Richter, a corporate partner at Fried, Frank, Harris, Shriver & Jacobson. Richter melded the interests of both public companies through a CVR that will give Abraxis shareholders an increased deal value should the merged company hit certain milestones or achieve specific revenue goals.
CVRs are popular in pharma deals since there is a broad range of outcomes for the deals depending on the performance and regulatory approval of certain products, says Richter. These M&A instruments are used to bridge different views over the value of a target company. Public companies traditionally have avoided CVRs because the rights have to be registered as securities with the SEC and because public company stockholders are not as intimately familiar with target companies and thus have difficulty assessing the target company’s value, according to this article from The Deal.
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