Bankruptcy is a complex legal procedure and there are a number of different aspects to each different case. One of those aspects can be the so-called “stalking horse bid.” This type of strategy is an initial bid from an interested company on a bankrupt company’s assets. The bidder is chosen from a pool of candidates, and must perform their due diligence in placing their bid. There are a number of advantages and risks associated with this type of strategy. These types of bids typically occur during a Chapter 11 and can significantly reduce the amount of time that the bankrupt company will spend in court.
A company in Chapter 11 must demonstrate to the court that it can obtain maximum value for the assets that it wishes to sell. The auction must be approved, and the initial bidder is chosen to not so much buy the bankruptcy estate as to give input as to the likely valuation. The company making this initial bid us taking some risks, as putting that bid together is hard work and there is always the chance that another company from the bidding pool could use that bid as the basis for their own. One example was the recent purchase by Valeant of bankrupt pharmaceutical company Dendreon. Valeant even had to up their offer to over $100 million when a last minute bidder arrived on the scene.
Structuring a stalking horse bid is not for the amateur or something anyone without experience should undertake on their own. If you have ever thought about the meaning of “destined to fail” you can apply that directly to an attempt. You could work like mad to get an offer acceptable to the bankrupt company, the creditors, and the bankruptcy court – only to see someone else sail in and sail out with your quarry. You’d need a solid termination clause and agree on a breakup fee in order to compensate you for work on the bid – which can involve accountants, lawyers, appraisers and other professional bills. Any bidder also has to put their money where their mouth is – the court will look at how much cash is involved and wants to know that any financing is rock solid. You also should know that if selected as the winning bid, you are stuck with your original terms, so make sure that you can live with them.
If you are thinking of submitting a stalking horse bid, or are considering introducing one in a prospective bankruptcy, you need an expert bankruptcy firm behind you. We handle all aspects of bankruptcy cases and have a team of highly experienced attorneys and staff. As a creditor, as a debtor, or as an interested purchaser, we can put everything together that you will need to ensure a smooth and successful bid. Call our Fort Lauderdale or West Palm Beach office, and set up a free initial consultation. While your valuation might not be in the millions or billions we will do our best to get you a good outcome.