how a stalking horse bid works
the stalking horse bid method allows a distressed company to avoid receiving low bids as it sells its final assets once the stalking horse bidder has made its offer other potential buyers may submit competing bids for the company s assets 3by setting the low end of the bidding range the bankrupt company hopes to realize a higher profit on its assets as bankruptcy proceedings are public they allow for the disclosure of more information about the deal and the buyer than would be available in a private deal 4a stalking horse bidder can generally negotiate which particular assets and liabilities it hopes to acquire advantages of a stalking horse bidas the stalking horse bid is the opening offer for the assets or company the bankrupt company typically awards several incentives to the stalking horse bidder these include expense reimbursements breakup fees and exclusivity for a specified period 5the stalking horse bidder also may negotiate the terms of the purchase choose which assets and liabilities it wishes to acquire and decide which executory contracts it is willing to cure and have acquired moreover the stalking horse bidder can negotiate bidding options that discourage competitors from bidding 5disadvantages of a stalking horse bidthe stalking horse bidder will exert great effort to gain the advantages of being the first bidder as this is the opening bid the stalking horse bidder must perform due diligence when determining its offer price and the fair value of the remaining assets the stalking horse bidder must invest time and resources to do this research the risk remains however that even with due diligence the price bid may be more than the value of the assets 5additionally there is risk associated with the stalking horse s bid being public another party can merely prepare and submit a slightly higher offer allowing it to capitalize on the stalking horse s due diligence also the stalking horse bidder may spend a good bit of time in negotiating the terms of the deal which will further raise overhead costs 5stalking horse bid examplesin april 2023 bed bath beyond filed for chapter 11 bankruptcy after several failed attempts to turn the business around and raise enough cash to cover expenses and stay afloat the retailer then had until june to choose a stalking horse bid for some or all of its assets 6eventually overstock com the online retailer known for its large furniture was chosen to set the floor for future bids overstock com bid 21 5 million for some of bed bath beyond s assets including its intellectual property business data rights to mobile apps and certain contracts other businesses were interested in picking up fewer assets such as just the retailer s domain name or certain assets associated with the wamsutta brand 67after the stalking horse bid was selected bed bath beyond s available assets went to auction in the end overstock com s bid proved to be enough overstock com bought the brand out of business and relaunched its website as bedbathandbeyond com 6meanwhile some of bed bath beyond s remaining assets were sold to other entities for example burlington stores bought most of the company s leases 8 and dream on me purchased buy buy baby s intellectual property assets 9it doesn t always end that way sometimes the stalking horse bid attracts lots of interest and the price gets pushed up for example in 2015 valeant pharmaceuticals international inc now bausch health companies inc placed a stalking horse bid for certain assets of bankrupt dendreon corp the initial offer was 296 million in cash on jan 29 2015 however due to other competitive bids the price increased to 400 million one week later 10at a bankruptcy hearing on feb 20 2015 the court formally approved valeant s role as a stalking horse bidder the company was entitled to receive a breakup fee and expense reimbursement if its bid was unsuccessful the court also set a deadline for additional bids ultimately the bankruptcy judge approved the sale to valeant for 495 million with a new deal including other assets 11