The Weird Side of M&A: How CVRs Turn "Maybe" Into Cash

Ever heard of a contingent value right? Probably not—they’re obscure AF, but they show up in some of the biggest deals out there.

Here’s the deal: When two companies merge but can’t agree on what something is actually worth, they use CVRs as a compromise. Think of it like an option on steroids—you get paid if a specific event happens by a deadline. If it doesn’t, you get nothing.

Why Do These Even Exist?

CVRs blow up in biotech and pharma M&A. Imagine an acquiring company doesn’t want to pay full price for a drug that might not get FDA approval. The target company wants to prove it squeezed every dollar out of shareholders. Enter CVRs: The payment depends on hitting real milestones—drug approval, sales targets, whatever.

Real example: When Sanofi bought Genzyme in 2011, they paid $74/share upfront but issued CVRs worth potentially $14 more per share if certain milestones hit. That’s a $14 swing depending on whether a drug actually works.

Here’s the Catch: Trading vs. Locked Up

Most CVRs? Non-transferrable. You’re stuck holding them in your brokerage account until they either pay out (years later) or expire worthless. You can’t sell them, can’t trade them.

But some—like Genzyme’s—trade on exchanges. That’s where it gets interesting. The market prices them separately from what the companies say they’re worth. FOMO traders betting the drug launches? Price goes up. Skeptics? Price crashes.

The Risk Nobody Talks About

Each CVR is totally custom. Different milestones, different timelines, different payout structures. Some pay in one lump sum; others dribble payments over years.

The bigger risk? The acquiring company has zero incentive to actually push the product if they don’t believe in it. Yeah, the contract says “good faith,” but when you’re sitting on a $100M investment in something you think is garbage, that good faith gets tested real fast.

TL;DR: CVRs are financial duct tape for merger disagreements. They can pay big if you’re right about the bet, but they can also go to zero. Read the SEC filings carefully—every detail matters.