Sanofi - Contingent Value Rig (GCVRZ)

[Enterprising Investor]

Worst case scenario?

Potential buyout on failure

The long term value of the CVR is limited by something else as well. If the revenue is below $1 billion and the price of the CVR is below $0.50 Sanofi has the right to take the CVR from the market. They can only do that from November 2016. So if sometime from November 2016 the CVR is below $0.50 and the revenue over the last year was less than $1 billion, and Sanofi wants to get rid of the CVR on the cheap then they don't have to do a tender offer. Instead they just have to compensate the CVR holders with the volume weighted average price over the last 45 days.

Sanofi may do this, but it doesn't have to! So this clause is a kind of call option owned by Sanofi. My guess is that Sanofi will either do this if management wants to make a bet for the company or if the company wants to make itself more attractive as a buyout target. For example when it is in talks with a potential acquirer. Then it's nice to have this potential billion dollar liability removed from the balance sheet. Because of its market cap of over $140 billion I think it's very unlikely that Sanofi will be acquired.

Time for me to begin averaging down.