Sanofi CVRs litigation settlement agreement arbitrage

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.

Sanofi logoThe 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

6 thoughts on “Sanofi CVRs litigation settlement agreement arbitrage

    1. Alpha Vulture Post author

      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:

      Parent has agreed not to withhold tax under French law on the delivery of cash or CVRs in the Exchange Offer or in the Merger or with respect to any payments made with respect to the CVRs except to the extent that withholding becomes required by reason of a change in French laws (or in the official interpretations thereof) in the future.

      Reply
  1. Tom

    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.

    Reply

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