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90 Second Lesson: To Stalk or Not to Stalk? Why be a Stalking Horse Bidder?

90 Second LessonQUESTION:

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 Representing Asset Purchasers in Bankruptcy.]

Advantages to being the stalking horse include the following:

  • The stalking horse determines the structure of the transaction (e.g., which assets are being sold);
  • The stalking horse will be comfortable with the terms of its asset purchase agreement (e.g., the amount of any deposit); and
  • The stalking horse negotiates with the seller to set the bidding procedures, including the protections for the stalking horse.

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 protected] 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.]

About The DailyDAC Editors

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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