CVRs may be separately tradeable securities; [2] they are occasionally acquired (or shorted) by specialized hedge funds.
[3] These rights typically take either of two forms:[4] (1) Event-driven CVRs compensate the owners for yet to eventuate positive developments in their business - hence protecting the acquirer against the valuation risk inherent in overpaying.
[5] In the first case, CVRs are granted [2] in scenarios in which the acquiring company does not wish to pay for a product that might not work, has a limited market, or might need significant investment; whereas on the other side, the acquired company “wants to get full value for its assets”.
Under these rights, shareholders will receive additional cash, securities, or benefits if a specific and named event occurs - one where the value of the firm significantly increases - within a specified timeframe.
[7] The first case: analogous to a call option, the payout to the CVR holder will be triggered by the event occurring, and will be zero otherwise.