Series 79 practice questionmediumMerger Consideration
A merger agreement includes a contingent value right (CVR) as part of the consideration. What is the primary purpose of a CVR?
- ATo guarantee a fixed value of acquirer stock
- BTo provide downside protection against stock price drops
- CFuture-event upside for target holders✓ Correct answer
- DTo ensure all consideration is paid in cash
Explanation
Why C — Future-event upside for target holders
A CVR gives target shareholders potential additional compensation if certain post-closing milestones are met, such as product approvals. This aligns incentives but is distinct from price protection mechanisms.
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