Practical Law Glossary Item 4-383-2224 (Approx. 3 pages)
Glossary
Stalking Horse
In the context of section 363 sales in bankruptcy, a stalking horse is a bidder used to set the purchase price floor so other bidders can know the minimum to bid for the target company. Stalking horse bidders have several advantages in the auction process, including:
Deal protections, such as break-up fees, expense reimbursement fees and topping fees.
The opportunity to negotiate the basic contract terms and structure of the transaction and the bidding procedures.
The opportunity to develop strategic relationships with management and key players in the bankruptcy case, such as the debtor, the creditors' committee, lenders, and other interested parties.
The stalking horse also has several disadvantages, including:
The risk of losing the deal without adequate reimbursement for its expenses.