The key to their strategy is a financial instrument called a contingent value right (CVR).
FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights
One company that sticks out in this regard is definitely CVR Partners LP ( UAN).
In Friday trading, CVR Partners LP shares are currently up about 0.9% on the day.
Shares in CVR closed the trading session essentially unchanged, but fell in after-hours trade as the news broke.
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But his newfound oil riches can be traced to CVR Energy, arguably the best deal Icahn has ever made.
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If the event occurs, the CVR holder can collect, but if the milestone is not reached, the holder gets nothing.
FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights
Over the last few years, the billionaire investor has been involved in names like CVR, Lions Gate, Clorox, and Motorola, among others.
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Among the examples are CVR Energy, Clorox and Netflix.
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The investment pool he manages for himself and his employees returned more than 20% in 2012, thanks to bets on Hain Celestial Group and CVR Energy.
In Revenue Ruling 88-31, however, the IRS concluded that a different kind of CVR used for hedging should be treated for tax purposes as an option.
FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights
After failing to find any potential buyers for CVR Energy, billionaire investor Carl Icahn decided to cease his attempts to take the company private.
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The terms of the CVR contract, and the milestones involved, are spelled out in an attachment to the proxy solicitation for the deal that is sent to shareholders.
FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights
Among the largest underlying components of XOP, in trading today CVR Energy Incorporated ( CVI) is off about 1.9%, and Holly Corporation ( HOC) is up by about 3.5%.
Target shareholders may also be required by contract to agree to treat any payments made pursuant to the CVR as additional consideration for the sale of their stock in the deal.
FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights
In addition, the majority stockholder of CVR Energy Inc.
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There are a small group of MLPs that primarily operate refineries instead: Northern Tier Energy, Alon USA Partners L.P. ( ALDW), Calumet Specialty Products Partners ( CLMT) and CVR Refining L.P. ( CVRR).
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Icahn was also recently involved in CVR Energy.
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Because the issuer determines the fair value of the CVR by designating a discount rate that purportedly estimates the likelihood that the milestones will or will not occur, the fair value measurement itself is highly controversial.
FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights
If the IRS follows the same rule for event-type CVRs, the issuer recognizes no gain or loss on the CVR issuance, the repurchase of the CVR, or the lapse of the CVR, but a target shareholder generally must recognize an immediate capital gain or loss taking into consideration the fair market value of the CVRs received on the date of distribution.
FORBES: Shadowy Shares: The Dark Side of Contingent Value Rights
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