Stalking Horse Bidder

Category: finance

The initial bidder selected by a bankrupt company to purchase its assets, setting the baseline price for a public auction.

The stalking horse is the "floor-setter." To prevent lowball bids in a 363 sale, the debtor negotiates a starting bid with the stalking horse. In exchange for spending money to do due diligence and set the market price, the stalking horse gets legal protections, like a "break-up fee" if a higher bidder wins.

Common Examples

• The hedge fund acted as the stalking horse bidder, establishing a $40 million floor for the software company’s intellectual property auction.
• Because they lost the final auction to a rival firm, the stalking horse bidder was awarded a $1.5 million court-approved break-up fee.