What Is a Stalking Horse Bid?
A stalking horse bid is an initial bid on the property of a bankrupt company. The bankrupt company will select an entity from a pool of bidders who will make the main bid on the corporate’s ultimate property. The stalking horse devices the low-end bidding bar so that other bidders can’t underbid the purchase price. The time frame “stalking horse” originates from a hunter searching for to cover himself behind each a real or pretend horse.
Key Takeaways
- A stalking horse bid is an initial bid on the property of a bankrupt company, surroundings the low-end bidding bar so that other bidders can’t underbid the purchase price.
- Other consumers can submit competing offers following the stalking horse bid.
- A stalking horse bidder is afforded somewhat a large number of incentives, paying homage to expense reimbursements and breakup fees.
How a Stalking Horse Bid Works
The stalking horse bid means allows a distressed company to avoid receiving low bids as it sells its final property. As quickly because the stalking horse bidder has made its offer, other possible consumers would in all probability submit competing bids for the company’s property.
By way of surroundings the low end of the bidding range, the bankrupt company hopes to grasp a greater get advantages on its property. As bankruptcy lawsuits are public, they permit for the disclosure of additional information about the deal and the shopper than can also be available in a private deal.
Stalking horse bidders can most often negotiate which specific property and liabilities it hopes to procure.
Advantages of a Stalking Horse Bid
For the reason that stalking horse bid is the outlet offer for the property or company, the bankrupt company maximum regularly awards a variety of incentives to the stalking horse bidder. The ones include expense reimbursements, breakup fees, and exclusivity for a specified duration.
The stalking horse bidder moreover receives benefits for its efforts. It’ll negotiate the words of the purchase, select which property and liabilities it wishes to procure, and decide which executory contracts it is prepared to remedy and have were given. Most very important, the stalking horse bidder can negotiate bidding alternatives that discourage festival from bidding.
Disadvantages of a Stalking Horse Bid
The stalking horse bidder will exert great effort to appreciate the benefits of being the main bidder. As that’s the hollow bid, the stalking horse bidder will have to perform due diligence (DD) when working out its offer price and the truthful value of the rest property. The stalking horse bidder will have to invest time and belongings to try this research. The chance remains, however, that even with due diligence the fee bid is also more than the cost of the property.
Additionally, there is likelihood associated with the stalking horse’s bid being public. Any other birthday celebration can merely get able and submit a somewhat higher offer, allowing it to capitalize on the stalking horse’s due diligence. Moreover, the stalking horse bidder would in all probability spend a superb little little bit of time in negotiating the words of the deal, which will further raise overhead costs.
Example of a Stalking Horse
In keeping with reporting by the use of Cision PR Newswire, Valeant Pharmaceuticals Global Inc. (NYSE: VRX) situated a stalking horse bid for certain property of bankrupt Dendreon. The initial offer used to be as soon as $296 million in cash on Jan. 29, 2015. On the other hand, as a result of other competitive bids, the fee greater to $400 million one week later.
At a bankruptcy taking note of on Fri., Feb. 20, 2015, the court docket formally authorized Valeant’s place as a stalking horse bidder. The company used to be as soon as entitled to procure a breakup price and expense reimbursement if its bid used to be as soon as unsuccessful. The court docket moreover set a time limit for extra bids. In the end, the bankruptcy judge authorized the sale to Valeant for $495 million, with a brand spanking new deal at the side of other property, in step with reporting by the use of the Wall Facet street Mag.
Is a Stalking Horse Bid Legally Binding?
Positive. As a stalking horse bid will have to be authorized by the use of a bankruptcy court docket, it is legally binding.
What Is a Topping Worth?
A topping price is a proportion of the difference between the successful bid and the stalking horse bid that are meant to be paid to the stalking horse bidder. This differentiates it from a breakup price, which is a collection amount.
What Is a Stalking Horse Candidate?
In politics, a stalking horse candidate is a sham candidate put forward to cover another candidate or to divide the opposition. In a bankruptcy proceeding, a stalking horse candidate is an buyer of the bankrupt company that is decided on by the use of the company and put forward for approval by the use of the bankruptcy court docket. By way of being allowed to set the initial bid, which other bidders cannot transfer beneath, it does in some way divide the opposition by the use of perhaps making it a lot much less perhaps that they will bid the least bit within the match that they imagine the initial bid too most sensible.
The Bottom Line
A stalking horse is chosen by the use of a bankrupt company to position in an initial bid on its property. The bankruptcy court docket will have to approve the choice and the bid. The property are then opened up to other bidders, who will have to make a greater bid in an effort to succeed in acquisition of mentioned property. Being a stalking horse bidder has its perks, which include having regulate of many aspects of the bidding scenario and fail-safe fees inside the event that its bid doesn’t win. On the other hand, the downside is that the location comes with higher initial costs, incurred by the use of intensive negotiations and sporting out due diligence, upon which other bidders can then capitalize in making their bids.
