Contingent value right
M&A / Merger ModelA security paying target shareholders only if a defined future event occurs, used to bridge disagreement about an uncertain outcome.
Also written: CVR, contingent value rights
A CVR makes part of the consideration contingent. Target shareholders receive it at completion, and it pays out only if a specified event happens: a trial result, a regulatory approval, a sales milestone, a litigation outcome.
It exists because neither side can settle the disagreement with the information available. The buyer will not pay for an outcome that may not happen; the seller will not give the upside away; so the payment is deferred to the event itself.
Biotech is the classic setting, where the whole value of an asset can turn on a single readout. It also appears where the uncertainty is a lawsuit or a major contract renewal.
It differs from an earnout mainly in that it is typically issued to public shareholders and can be structured to trade, whereas an earnout is a contractual right of private sellers who often remain in the business.
Worked example
A pharma buyer offers 900 in cash plus a CVR paying 200 if a Phase III asset is approved within three years.
The seller values the CVR at its full 200; the buyer, at a 55% probability and a two year wait, values it near 100.
Neither has to win that argument. The trial result settles it, which is the entire reason the instrument exists.