A stalking horse bid is an initial bid on a distressed company’s assets made by an interested party that the bankrupt company (debtor) chooses to participate in a 363 sale. The stalking horse bidder agrees to purchase the specific assets unless the bankruptcy estate receives a higher, better bid.
Jamie S. emailed us, asking, “Can you please sum up the pros and cons of serving as the ‘stalking horse’ in a bankruptcy sale?”
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.
Advantages to being the stalking horse include the following:
On the other hand, there are reasons not to want to be the stalking horse.
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[Editors’ Note: This 90 Second Lesson is based, in substantial part, on material reprinted from Commercial Bankruptcy Litigation 2d and Strategic Alternatives For and Against Distressed Businesses, with permission of Thomson Reuters. Both books are written for a primary audience consisting of people who are not bankruptcy specialists. This is part of our irregular series in which we answer readers’ questions. If you have a question, submit it to [email protected], and we will try to answer it.
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This is an updated version of an article originally published February 22, 2019 and previously updated on July 8, 2021.]
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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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