One of the most unusual special situation investments: contingent value rights
As someone who is always looking for interesting investments that are often off the radar of the mainstream media, I am particularly fascinated with something called contingent value rights. These rights are usually used in conjunction with a buy-out of a company, providing the former shareholder with milestone payments if certain future events happen.
For example, here's an interesting one. It appears as though Carl Ichan has funally succeeded in his effort to take over CVR Energy (CVI) for $30 per share. As part of this deal, current CVI shareholvers will receive a contingent value right (which interestingly is often referred to by its acronym CVR) that entitles them to an upside if Ichan is able to re-sell the company within nine months.
CVI is currently trading at $30.27/share. So essentially one can pay $0.27 each for these rights. That intrigues me, but I think that I am going to pass for now for a couple of reasons. One, if another company was really that interested in CVI why wouldn't they just come out with a competing bid right now rather than waiting for Ichan to close on his deal and then negotiate with him.
Also, as the following article mentions, refiners are likely experiencing peak earnings right now. this makes them look cheap on the basis of many metrics, like P/E, but if earnings begin to fall what once was cheap may not be so. Not to mention the fact that nine months is not a very long time. Let's say that Ichan is able to flip CVI in a year...I assume that means that rights holders would miss out on any upside.
Here's a link to an interesting article on the deal. I'm not sure why the formatting is so funky, but the link works and the content is good:
Icahn Gets Creative on CVR Energy Bid
Contingent value rights are often used in conjunction with pharma and biotech mergers, providing payments to former shareholders if certain approval or revenue milestones are hit on specific drugs. Here's a link to an interesting article on their use in that industry:
As Investors Eschew Risk, More M&A Deals Combine Cash with Milestone-Based Fees
I have not yet found a CVR situation that is attractive enough for me to personally invest in in real-life, but I'm definitely looking. Has anyone out there ever invested in one or is anyone aware of an attractive one that's available right now? I'd love to hear about it.
Thanks for reading everyone. Have a fantastic day!