Earlier this year I wrote happily how the Casa Ley CVR that was issued in 2015 in connection with the Safeway merger was going to pay out. Another CVR that I acquired in the same year, when Synergetics USA was bought by Valeant Pharmaceuticals (now know as Bausch Health Companies), didn’t have a happy ending. The CVR had some milestones related to product sales from the effective date of the merger till 30 June, 2018, and apparently those weren’t met. I didn’t see a SEC filing or press release about it, but only noticed the disappearance of the CVRs in my brokerage account. Of course, a bit of a disappointing outcome, but not really surprising considering how Valeant imploded almost directly after finishing the acquisition.
No positions anymore
Aren’t these CVRs full of conflict of interest?! The acquirer probably can manage things so that he does not have to pay the compensation.
If I think about the reputation of Valeant I would not be surprised if they had gamed the process..
Sure, and that’s why sales milestone related CVRs are probably my least favorite type. But the things they can do are usually sort of limited I think. If you have binary lump sum milestone at $50 million sales and the company is on track for $51 million in sales they will probably find a way to mis it. But going for $49 million while they perhaps could go for $60 or perhaps $70 million is a whole different game. So I’d say things are a bit skewed against the CVR owners, but not without limit. Because the company and also individuals inside the company will be highly incentivized to sell as much as possible.
And about Valeant specifically, perhaps the fact that they were forced to stop their creative games made this thing not work out. Presumably fabricating higher revenue numbers would have been worth spending some cash on a CVR payout. When things were going “smoothly” they consumed cash like crazy, but just managed to borrow a lot.