Jamie S. emailed recently, asking “Can you please sum up the pros and cons of serving as the “stalking horse” in a bankruptcy sale?
Yes, Jamie, we can. A stalking horse bidder plays an important role in many bankruptcy acquisitions, and one of the most important decisions confronting a purchaser in a bankruptcy acquisition is whether to become the stalking horse.
[Editor’s note: Stalking horse bids are made as part of a section 363 sale process For more information about 363 sales generally, we recommend Buying Operating Assets from a Distressed Seller: A Practical Guide to Assessing Legal Risk]
Advantages to being the stalking horse include the following:
On the other hand, there are reasons not to want to be the stalking horse. For example, the stalking horse bid is first and is typically public. Some purchasers may prefer to wait to see the stalking horse bid before deciding whether they will participate in the auction. Also, some purchasers may prefer not to be the stalking horse as a way to limit up-front costs and, instead, rely on the stalking horse to conduct initial financial and legal due diligence on the target.
[Editors’ Note: this is an updated part of our irregular series in which we answer readers’ questions, originally published in March 2014. If you have a question, submit it to email@example.com and we will try to answer it.]
[Editor’s Note: This 90 Second Lesson is based, in substantial part, in material reprinted from Commercial Bankruptcy Litigation 2d and Strategic Alternatives for and Against Distressed Businesses, with permission of Thomson Reuters. For more information about these publications, please visit www.legalsolutions.com.]
The editors and editorial board of DailyDAC include preeminent restructuring and insolvency professionals, journalists, and editors. They are devoted to providing reliable and plain English education and deal intelligence about assignments, corporate bankruptcy, receiverships, out-of-court workouts and similar topics.
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90 Second Lesson: What is an “Exchange Offer?”
LLC Membership Interests in Chapter 11 – Can They be Sold Over Other Members’ Objections?
Section 363 Sale: Free and Clear of Claims That Are Backed By Strong Public Policies
90 Second Lesson: Secured Creditors and Toll Charges
Not Necessarily Free and Clear I: Purchasing Real Estate Property in a Section 363 Sale
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