When Sanofi (NASDAQ:SNY) acquired Genzyme back in 2011 it issued tradable contingent value rights (NASDAQ:GCVRZ) that would payout when meeting certain regulatory and sale milestones. Despite high initial expectations none of the milestones were met, and at some point it looked extremely likely that the CVRs would expire worthless. However, some CVR holders went to court arguing that Sanofi didn’t fulfill their obligations under the agreement. Apparently their argument had some merit (I never followed these CVRs that closely to be honest), and yesterday Sanofi announced that they would settle and pay a total of $315 million.
The trustee estimates that this would translate into approximately $0.88/CVR after paying all fees, but is unable to provide an exact number at this time. With the rights trading at $0.84 yesterday I couldn’t resist picking up a couple of them since this implies a spread of 4.8% which I think it quite generous for something that should be more or less a done deal. They will need to get court approval for the settlement, but I don’t think there is much that can go wrong nor should it take that much time. It’s a very straightforward situation at this point, and combined with a decent spread I think it makes a good bet.
Disclosure
Long GCVRZ
Any idea how the distribution of the litigation proceeds will be taxed?
I don’t think it will be taxed, but you never know of course… but in the original documents filed in connection with the merger there is the following line:
Do you have any idea when the distribution will be made?
My guess is based on nothing, but would say probably Q1 2020.
I’ve held the CVRs for quite some time (some since the merger) and decided to sell them after the settlement announcement. I will be paying capital gains, but I had concern (and not a big enough position to investigate further) that the payment might be considered a litigation settlement (as opposed to a buyback of the CVR or similar). I believe that in the US a litigation settlement is considered ordinary income (I assume you get to deduct your expenses/cost, but don’t know). Since I really don’t know the tax treatment I did the easy thing and sold the CVR before the distribution.
Nice find – Did not have it on my radar at all!
big pop today. can’t find any news. any idea on what’s going on?
Any idea why furiously trading 2c below final settlement amount? Today is the last day of trading. SS
does anyone know when the final distribution will be made? It has been delisted for a few weeks.
Cash just showed up in my account today
Thanks! I got it back today too. Good timing to redeploy.