Stalking-Horse Bid

What Is a Stalking-Horse Bid?

A stalking-horse bid is an initial bid on the assets of a bankrupt company. The bankrupt company will pick an entity from a pool of bidders who will make the main bid on the company's excess assets. The stalking horse sets the low-end bidding bar so different bidders could not underbid the purchase at any point price. The term "stalking horse" begins from a tracker attempting to hide himself behind either a real or fake horse.

How a Stalking-Horse Bid Works

The stalking-horse bid method allows a distressed company to try not to receive low bids as it sells its last assets. When the stalking-horse bidder has made its offer, other potential buyers might submit contending bids for the company's assets.

By setting the low finish of the bidding range, the bankrupt company desires to realize a higher profit on its assets. Bankruptcy procedures are public. The public nature allows for the disclosure of additional data about the deal and the buyer than what might be accessible in a private deal.

Stalking-horse bidders can generally arrange which specific assets and liabilities it desires to secure.

Benefits and Disadvantages of a Stalking-Horse Bid

Since the stalking-horse is the opening offer for the assets or company, the bankrupt company normally awards the stalking-horse bidder with several incentives. Incentives incorporate expense reimbursements, breakup fees, and eliteness for a predefined period.

The stalking-horse bidder receives benefits for its efforts. It might arrange the terms of the purchase and can pick which assets and liabilities it wishes to get. In particular, the stalking-horse bidder can arrange bidding options that deter contenders from bidding.

The stalking-horse bidder will apply great work to gain the benefits of being the principal bidder. Since this is the opening bid, the stalking-horse bidder must perform due diligence (DD) while determining its offer price and the fair value of the leftover assets. The stalking-horse bidder must invest time and resources to do this research. The risk remains, nonetheless, that even with due diligence, the price bid might be more than the value of the assets.

Additionally, there is risk associated with the stalking-horse's bid being public. Another party can simply prepare and present a somewhat higher offer. Along these lines, the subsequent company gains by the stalking-horse's due diligence. Likewise, the stalking-horse bidder might spend a decent bit of time in arranging the terms of the deal, which will additionally raise overhead costs.

Illustration of a Stalking Horse

Valeant Pharmaceuticals International Inc. (NYSE: VRX) put a stalking-horse bid for certain assets of bankrupt Dendreon. The initial offer was $296 million in cash on January 29, 2015. Notwithstanding, due to other competitive bids, the price increased to $400 million multi week after the fact.

At a bankruptcy hearing, the court officially approved Valeant's job as a stalking-horse bidder. The company was qualified for receive a breakup fee and expense reimbursement on the off chance that its bid was ineffective. The court likewise set a cutoff time for additional bids. Eventually, the bankruptcy judge approved the sale to Valeant for $495 million, with another deal including different assets.

Features

• A stalking-horse bidder is managed the cost of different incentives, for example, expense reimbursements and breakup fees.
• Different buyers can submit contending offers following the stalking-horse bid.
• A stalking-horse bid is an initial bid on the assets of a bankrupt company, setting the low-end bidding bar with the goal that different bidders can't underbid the purchase price.