Contingent Value Rights in Public Takeovers: Analysis under Swiss Law

Gerhard Frank
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Gerhard Frank: Dr. iur. LL.M. (Columbia), Attorney-at-law, Zurich.

European Company and Financial Law Review, 2006, vol. 3, issue 3, 249-286

Abstract: The use of stock as acquisition currency entails the risk that the price of the acquirer's stock fluctuates significantly between the announcement and the closing of the deal, or even after the deal closes. A collar, setting a fixed value which pinpoints the exchange ratio at closing, may protect the target shareholders against stock price fluctuations prior to the closing of the deal. A contingent value right (“CVR”) offers a collar-like protection for a certain period after the deal closes. Given the increased volatility in the stock market, the use of hedging and protection devices designed to mitigate such future stock price variations could become more popular. After defining the CVR (I. 1.) and outlining its basic terms (I. 2.) – as well as its benefits and drawbacks (I. 3.–4.), we will determine its legal qualification under Swiss law (II. 1.) and analyse its various legal regimes, namely under corporate (II. 2.), takeover and securities (II. 3.) and finally, criminal law (II. 4.). This article shows that a proper structuring may help to overcome the legal uncertainties accompanying the use of CVRs.

Date: 2006
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DOI: 10.1515/ECFR.2006.011

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