What is a stalking horse bid?
- The stalking horse gets the opportunity to negotiate the sale terms, i.e. legal and financial terms, compared to other bidders who get into an agreement that is already negotiated with another party. The stalking horse bidder can choose the specific assets and liabilities it wants to acquire, and negotiate representations and warranties
What is a stalking horse buyer?
A stalking-horse bid is an initial bid on the assets of a bankrupt company, setting the low-end bidding bar so that other bidders can’t underbid the purchase price. A stalking-horse bidder is afforded various incentives, such as expense reimbursements and breakup fees.
What is a stalking horse?
A stalking horse is a buyer who has agreed to make a minimum bid before a bankruptcy auction. The sale process will now be conducted without a stalking horse bid. The stalking horse bidder typically enters into a sale contract with the debtor for the subject assets, thereby setting a floor, or minimum bid.
What is a dark horse bid?
In politics, a “dark horse” is a candidate for office for whom little is known or for whom expectations are low, but who then goes on to unexpectedly win or succeed.
What is a stalking horse sales process?
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. The opportunity to negotiate the basic contract terms and structure of the transaction and the bidding procedures.
Why is it called a stalking horse?
The initial bidder with whom the debtor negotiates a purchase agreement is called the “stalking horse” bidder. The term is an old hunting term referring to either a real horse or an image of a horse (typically some type of screen) behind which a hunter would hide to conceal himself from, and get closer to, his prey.
Is a stalking horse bid legally binding?
For example, if no one shows up at the auction, the stalking horse may wonder if it overbid for the assets. Once the bankruptcy court approves the stalking horse agreement, it becomes binding on all parties and difficult, if not impossible, to renegotiate.
What is the meaning of to stalk someone?
Stalking is the act of following someone or something very closely and watching its every move. The verb to stalk means to pursue carefully, and often stealthily. It was originally used to describe hunters following their prey and waiting for the precise moment to attack.
How do you use stalking horse in a sentence?
He doesn’t actually want to be elected—he’s just a stalking horse who’s trying to see how fractured our party really is. 2. Something that conceals a person’s true intentions. I’m afraid that this deal is just a stalking horse for a more nefarious long-term plan.
What is a Section 363 sale?
A section 363 (named after the section of the US Bankruptcy Code that authorizes a debtor to sell its assets) is a court-sanctioned sale process for a company in a US bankruptcy case.
What is overbid protection?
What is that? The short and easy answer is that an overbid is an auction conducted during a hearing to approve a bankruptcy sale. You see Bankruptcy Code § 363 authorizes a debtor-in-possession or Trustee, to sell property of the estate other than in the ordinary course of business.
What is credit bidding?
Credit bidding is a mechanism, enshrined in the US bankruptcy legislation, whereby a secured creditor can ‘bid’ the amount of its secured debt, as consideration for the purchase of the assets over which it holds security.
Who was the dark horse?
Polk ended up winning the election by the closest margin in history. Because of his “dark horse” status, Polk was determined to prove himself by becoming one of the most productive presidents ever.
What is a topping fee?
In a 363 auction a type of break-up fee that the debtor agrees to pay to an initial proposed purchaser (the stalking horse) if the proposed purchaser is not the prevailing bidder in the auction.
A stalking-horse bid is a first bid on the assets of a bankrupt firm that is made after the company has filed for bankruptcy. The insolvent corporation will select one entity from a pool of bidders to be the first to make a bid on the firm’s remaining assets once it has declared bankruptcy. The stalking horse sets the low-end bidding bar so that other bidders will not be able to undercut the buying price established by the stalking horse. The word “stalking horse” comes from a hunter who attempted to cover himself behind either a real or a false horse in order to avoid detection.
- In bankruptcy auctions, a stalking-horse bid is an early offer on the assets of a bankrupt firm that establishes the low-end bidding bar so that later bidders cannot undercut the acquisition price. Following the stalking-horse bid, other purchasers will be able to submit competing offers. Different incentives are offered to stalking horse bidding participants, including expense reimbursements, breakdown payments, and breakup fees.
How a Stalking-Horse Bid Works
When a failing firm sells its remaining assets, it might use the stalking-horse bid approach to prevent obtaining cheap bids from competitors. Following the submission of the stalking-horse bidder’s offer, other potential purchasers will have the opportunity to submit competing offers for the company’s assets. The bankrupt corporation expects that by selecting the low end of the bidding range, it would be able to earn a bigger return on its assets. Bankruptcy proceedings are made available to the public.
Stalking-horse bidders have the ability to negotiate the specific assets and liabilities that they wish to buy, in most cases.
Advantages and Disadvantages of a Stalking-Horse Bid
Considering that the stalking-horse bid is the first offer made on an asset or firm, the bankrupt company will often provide the stalking-horse bidder with a number of incentives. Some incentives include repayment of expenses, breakup costs, and exclusivity for a specific amount of time. In exchange for its efforts, the stalking-horse bidder receives compensation. It has the ability to negotiate the terms of the acquisition and select the assets and liabilities that it intends to acquire as part of the transaction.
The stalking-horse bidder will put forth tremendous effort in order to earn the advantages of being the first bidder on the auction block.
This study will need the stalking-horse bidder to put up the necessary time and resources.
The public disclosure of the stalking-offer horse’s also carries a certain amount of danger.
Thus, the second corporation takes use of the stalking-due horse’s diligence to its advantage. Additionally, the stalking-horse bidder may need to spend a significant amount of time negotiating the conditions of the transaction, which may increase overhead expenses even more.
Example of a Stalking Horse
Stalker bidder Valeant Pharmaceuticals International Inc. (NYSE: VRX) has put an offer for some assets of the insolvent Dendreon Pharmaceutical Company. On January 29, 2015, the company made an initial cash offer of $296 million. Although there were other competitive offers, the price eventually raised to $400 million a week later as a result of the other proposals. Valeant’s participation as a stalking-horse bidder was officially accepted by the bankruptcy court during a bankruptcy hearing. If the company’s offer was unsuccessful, it was entitled to a breakup fee as well as repayment of expenses.
The bankruptcy court ultimately allowed the sale to Valeant for $495 million, with a new transaction incorporating additional assets thrown into the mix.
Stalking horse offer – Wikipedia
It is referred to as a talking horse offer, agreement, or bid when a bid is placed on a bankrupt company or its assets that is prepared prior to the auction to function as an effective reserve bid. When a court auction is held (or before a court auction), the goal is to maximize the value of its assets while avoiding low bids. Before the auction, the debtor can offerbidding protections like as breakup fees to its best bidder in order to get a talking horse provide from that bidder. For the bidder, these incentives increase the perceived worth of the offering, which may result in a higher price offer prior to the auction’s commencement.
On October 22, 2007, technology companySCO petitioned a bankruptcy court to authorize a transaction under which a purchaser would buy “essentially all assets utilized by the Company in connection with its SCOUNIXBusiness as well as any associated claims in litigation,” according to the company’s filing. If the purchaser, York Capital Management, were to be designated as a stalking horse in subsequent bidding for SCO’s assets and others outbid York, then SCO would be required to pay the purchaser $780,000 in breakup fees and reimbursement of all expenses incurred by York up to $300,000, according to the terms of the agreement.
- Steve and Barry’s LLC, a retailer of casual wear, filed a stalking horse agreement with the United States Bankruptcy Court for the Southern District of New York on August 4, 2008, according to court records.
- Reuters reported on July 27, 2009, that the Swedish telecommunications company Telefon AB L.M.
- An announcement about a prospective stalking horse transaction was made by the Texas Rangers Major League Baseball franchise on July 8, 2010.
- Snyder, the court-appointed restructuring officer.
- If Greenberg-Ryan had lost, the firm would have won $15 million.” On February 21, 2011, Reuters reported that Blockbuster intends to pursue a $290 million stalking horse deal from Cobalt Video Holdco in order to acquire the company.
- During a bankruptcy auction in 2013, the assets of the company Hostess Brands were sold off for a high price.
- Kodak proposed a stalking horse transaction for $210 million on April 15, 2013, in which Brother Industries would purchase Kodak’s Document Imaging subsidiary in advance of Kodak’s bankruptcy court clearance, which is scheduled for June 2013.
A stalking horse proposal by Landry’s, Inc. was made against Houlihan’s Restaurant, Inc. in the company’s chapter 11 bankruptcy filing in January 2019.
- Henry Owsley is a historical figure (2005). Investment Banking in Difficult Times. Beard Books (ISBN 1-58798-267-6)
- Hillman, William (ISBN 1-58798-267-6)
- City (2004). The Bankruptcy Deskbook is a resource for those who are filing for bankruptcy. City: Practising Law Institute (PLI).ISBN0-87224-139-4
- Practising Law Institute (PLI).
- Financial Times Lexiconfrom theFinancial Times
- “Stalking-Horse Bid”.investopedia.com. Retrieved 9 January 2016
- “Stalking-Horse Bid”.investopedia The SCO Group, Inc. was featured in the May 2006 edition of Financialer Worldwide as the “Stalking Horse” in a Chapter 11 363 sale in the United States. Form 8-K is a ten-point scale. On October 22, 2007, the Securities and Exchange Commission (SEC) released the following statement: “SCO Has a Bid
- Would Like More – Updated.” On October 23, 2007, Groklaw published an article that was later retrieved on September 24, 2013. According to Businesswire.com, “SteveBarry’s Files “Stalking Horse” Agreement,” which was published on August 4, 2008
- “Ericsson Powers Up U.S. Presence With Nortel Deal,” which was published on July 27, 2009, in The Wall Street Journal
- And “Ericsson Powers Up U.S. Presence With Nortel Deal,” which was published on August 4, 2008, in The Wall Street Journal. Texas Rangers’ Proposed July 16 Auction Has Been Cancelled
- “Blockbuster gets $290 million stalking horse bid,” from Reuters on February 21, 2011
- “Google Makes $900 Million Stalking-Horse Bid For Nortel Patents As It Looks To Fend Off Trolls,” from TechCrunch on April 4, 2011
- “Blockbuster gets $290 million P. Milford and D. McCarty are co-authors of this paper (January 31, 2013). In a statement, the CEO of Hostess said that “stalking-horse bids total $858 million.” Bloomberg. Retrieved 2013-01-31.:CS1 maint: multiple names: authors list (link)
- “DesignLine Stalking Horse Bidders”
- “DesignLine Stalking Horse Bidders” (April 15, 2013). “Kodak expects to sell its scanning business to Brother for $210 million in the near future.” engadget.com. 2013-04-15
- Balakrishnan, Anita (2016-06-10). “Gawker Media auction opens with Ziff Davis offer amid bankruptcy”. AOL. CNBC. Retrieved2016-06-10
- s^ Ember and Sydney are two of the most talented people in the world (2016-06-10). “Gawker, which filed for bankruptcy following the Hulk Hogan lawsuit, is offered for sale.” The New York Times is a newspaper published in New York City. ISSN0362-4331. Retrieved2016-06-10
- s^ James Caldwell was born in the town of Caldwell in the state of California (2016-08-16). After the Hogan vs. Gawker battle, Univision is said to be interested in purchasing the insolvent Gawker Media.” PWTorch. As of August 16, 2016, Houlihan’s Restaurants, Inc. has executed an asset purchase agreement
- The sale was made possible through a voluntary Chapter 11 filing
- The restaurants are open and serving customers
- Franchise restaurants are not included in the proceeding.” PR Newswire, retrieved on 2019-11-15
- PR Newswire, retrieved on 2019-11-10
Bankruptcy Sales and The Stalking Horse
A number of advantages exist for purchasers of assets sold according to Section 363 of the Bankruptcy Code or pursuant to a plan of reorganization, but they also present a number of potential barriers, particularly for purchasers who are unfamiliar with the bankruptcy sales procedure. These include I obtaining assets free and clear of liens, (ii) protection from fraudulent transfer claims, (iii) protection against certain liabilities and certainty with respect to the enforceability of the transaction documents as provided in the bankruptcy court’s order, (iv) relief from the requirement to obtain consent to the assignment of certain contracts, (v) an expedited waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and (vi) exemption from the requirement to obtain consent to certain contracts The criteria that buyers frequently find unfavorable are essentially those that are related with a debtor’s obligation to acquire the highest and best value for the assets in question.
These considerations include, among other things, the longer period of time typically required to complete such transactions, the requirement for court approval (including the resolution of any objections to the sale), and the uncertainty associated with the auction process necessary to maximize the value of the debtor’s estate.
The “stalking horse” bidder is the first bidder with whom the debtor negotiates a purchase agreement and is referred to as such.
In bankruptcy proceedings, potential bidders should not be misled by the term’s origins because very little will be concealed, and the purchaser will be required to disclose much more information about the deal, as well as information about the purchaser himself or herself, than he or she would be required to disclose in a typical nonpublic transaction.
- Typically, the initial bidder must invest more money than the other bids in order to negotiate the contract, do due diligence, and otherwise establish the “floor” for the terms of the transaction.
- If the potential purchaser does not get these benefits, he or she may not agree to act as the stalking horse in the first place.
- If a stalking horse demands financial incentives, this may be in conflict with the debtor’s obligation to get the highest and greatest value possible, as well as obligations of the bankruptcy code.
- Regardless, the stalking horse will very certainly be exposed to the possibility of having its contract publicly publicized during the bankruptcy process, because the bankruptcy court has not yet approved the proposed incentives for the stalking horse.
- This would make it impossible for the bankruptcy court to grant bid incentives for the stalking horse to begin with, because another bidder has promised to acquire the assets without the benefit of bid incentives.
- So the debtor’s assent to bidding incentives becomes legally enforceable on the debtor at the time of signing the purchase agreement, rather than later, when the bankruptcy court approves the bid incentives.
- Expense reimbursement is provided.
Fees and expenditures incurred in connection with legal and financial advice, due diligence, and other reasonable expenses made in connection with the transaction are eligible to be reimbursed.
The repayment of expenses must be approved by the bankruptcy court, which is normally done in accordance with an order establishing bidding processes and safeguards.
Another point that will most likely be discussed between the stalking horse and the debtor will be the conditions under which the stalking horse is entitled to reimbursement and when the payment is truly due, both of which will be decided by the court.
What constitutes a “higher and superior offer” will almost certainly be the topic of discussion during the negotiating process, especially if the purchase price includes anything besides cash.
Fees for ending a relationship.
Such payments, on the other hand, can be contentious in many countries, and it is crucial to be aware of a jurisdiction’s attitude on such fees before asking them.
It is simply additional money given to the stalking horse in order to persuade it to be the initial bidder and build the basis for other possible bidders in an auction.
While break-up fees may not always result in higher floors being set, in the majority of bankruptcy sales, a break-up fee will almost certainly be requested by a potential stalking horse, and whether or not a break-up fee will be included in the transaction will be one of the issues that will be negotiated between the parties.
- A combined break-up fee and expenditure reimbursement in excess of around 3 percent of the purchase price, as a general rule, is likely to be viewed with heightened suspicion in the majority of jurisdictions.
- The creditors’ committee or the U.S.
- In most cases, a disappointed potential bidder does not have the legal authority to protest to the proposed break-up cost.
- The capacity of a stalking horse to negotiate advantageous bidding processes is perhaps the most critical piece of power a stalking horse can have.
- A stalking horse will be discouraged from attempting to change bidding procedures if they are preapproved in advance.
- Some judges, on the other hand, are apprehensive about approving bidding processes before a stalking horse has been identified.
- In transactions that do not take place in a bankruptcy proceeding, the purchaser will frequently seek to engage into an exclusivity agreement with the seller.
- Although it is not uncommon for a possible purchaser to arrange limited periods of exclusive business with the debtor as part of its efforts to reach a stalking horse purchase agreement with the debtor, it is not recommended.
- Conclusion Initial encounters with bankruptcy procedures may be frustrating and foreign to a prospective purchaser who is unfamiliar with the process.
In addition to attempting to negotiate some or all of the provisions described above, the stalking horse can often gain a significant advantage over other bidders simply by virtue of the fact that the stalking horse is the bidder with whom the debtor deals during the course of negotiating the purchase contract.
- Lawyers to Speak With In order to obtain further information, please contact your primary Firm representative or the attorney named below.
- Brad B.
- Erens Chicago +1.312.269.4050 Legal advice on any specific facts or circumstances should not be construed as being provided by Jones Day publications.
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Open Road Reaches $87.5 Million Deal With Stalking Horse Bidder
A number of advantages exist for purchasers of assets sold according to Section 363 of the Bankruptcy Code or pursuant to a plan of reorganization, but they also present a number of potential barriers, particularly for purchasers who are unfamiliar with the bankruptcy sale process. The advantages include I obtaining the assets free and clear of liens, (ii) protection from fraudulent transfer claims, (iii) protection against certain liabilities and certainty with respect to the enforceability of the transaction documents as provided in the bankruptcy court’s order, (iv) relief from the requirement to obtain consent to the assignment of certain contracts, (v) an expedited waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and (vi) exemption from the requirement to obtain consent to One of the most common aspects that purchasers find unfavorable is the debtor’s legal obligation to achieve the highest and best value possible for his or her asset(s).
There are a variety of factors to consider, including the longer period of time typically required to complete such transactions, the requirement for court approval (including the resolution of objections to the sale), and the uncertainty associated with the auction process necessary to maximize the value of the debtor’s estate.
The “stalking horse” bidder is the first bidder with whom the debtor enters into a purchase agreement after receiving an initial bid from a number of parties.
In bankruptcy proceedings, potential bidders should not be misled by the term’s origins because very little will be concealed, and the purchaser will be required to disclose much more information about the transaction, as well as information about the purchaser himself or herself, than he or she would be required to disclose in a typical nonpublic transaction.
- Because of a variety of factors, potential purchasers may be hesitant to take on the role of stalking horse, preferring instead to wait for another bidder to negotiate a deal before participating in the auction.
- It is possible that the potential purchaser would not agree to act as the stalking horse if he or she did not receive these inducements.
- If a stalking horse demands financial incentives, this may be in conflict with the debtor’s obligation to obtain the highest and best value possible, as well as with other provisions of the bankruptcy code.
- Regardless, the stalking horse will almost certainly be exposed to the risk of having its deal publicly announced during the bankruptcy process, as the bankruptcy court has not yet approved the proposed incentives for the stalking horse.
- An offer of this nature would make it difficult for the bankruptcy court to approve bidding incentives for the stalking horse in the first place, because another bidder has offered to purchase the assets without the benefit of bidding incentives.
- Nevertheless, in most bankruptcy sale processes, the advance approval of bidding incentives by the bankruptcy court is the exception rather than the rule.
Reimbursement is available for fees and expenses incurred in connection with legal and financial advisers, due diligence, and other reasonable expenses incurred in connection with the transaction Amounts subject to reimbursement are typically limited to a maximum amount or percentage of the purchase price, and other restrictions may be imposed so that the reimbursement is not viewed as extravagant.
- The reimbursement of expenses must be approved by the bankruptcy court, which is usually done in accordance with an order approving bidding procedures and safeguards.
- Another issue that will most likely be debated between the stalking horse and the debtor will be the circumstances under which the stalking horse is entitled to reimbursement and when the payment is actually due, both of which are outlined in the agreement.
- There will almost certainly be some debate over what constitutes a “higher and better offer,” particularly in the case of a purchase price that includes items other than cash.
- Expenses associated with dissolution.
- Such fees, on the other hand, can be contentious in many jurisdictions, and it is important to be familiar with the position of a jurisdiction on these fees before requesting them.
- It is essentially additional compensation given to the stalking horse in order to persuade it to be the first bidder and lay the groundwork for other potential bidders in an auction.
- Break-up fees that are too high may be seen as deterring potential bidders from entering the competition.
The buyer’s insider status will also increase the likelihood that a break-up fee will be scrutinized more closely.
trustee are the parties most likely to object to break-up fees, arguing that the proposed fee has a chilling effect on the recovery of assets.
Processes for submitting bids The ability to negotiate favorable bidding procedures is perhaps the most important piece of leverage a stalking horse can wield.
A stalking horse will be discouraged from attempting to change bidding procedures if they are preapproved in advance.
Although some judges are reluctant to approve bidding procedures before a stalking horse has been identified, others are more open-minded.
In a bankruptcy context, such an arrangement may be in conflict with a debtor’s obligation to obtain the highest and best value for the assets, which typically requires that an auction be held.
Debtors may agree to such exclusivity, either formally or informally, in order to maximize their chances of reaching a purchase agreement, but the obligation of exclusivity is not truly binding on the debtor unless and until the bankruptcy court grants approval.
After learning the process, or after obtaining legal and financial advisors who are familiar with it, the purchaser can typically use the process to its advantage as a stalking horse in order to gain an advantage over the competition.
Following approval of the sale, the stalking horse becomes a well-known entity, and it can be used to reassure both the debtor and creditor groups that the purchaser will be able to complete the transaction quickly and efficiently once the sale is approved.
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The Operational GC: When Hunting for a Bargain, Don’t Forget Your Horse
F. P. Ardizzone created the artwork. As a result of the pandemic, some consumer and business behaviors are likely to have changed in a way that has direct economic consequences, ranging from shrinking office space as a result of increased telecommuting to energy exploration and production companies becoming economically unviable as a result of falling fuel demand. Because of this, many predict a wave of bankruptcies, which might present a fantastic purchase opportunity for other businesses looking to expand.
If, on the other hand, your firm is going to be the seller of assets, you must understand when it is appropriate to engage a stalking horse in your process, as well as how to care for and feed such a beast so that it does not bring your entire herd down with it.
The corporate stalking horse
The name “stalking horse” comes from the realm of fowl hunting, which is where the term originated. Hunters observed in the 16th century that birds in the wild would often run as soon as people came close to their territory. They were, on the other hand, generally ready to tolerate the presence of horses and cattle in their midst. Hunters would take advantage of this by approaching the birds from the opposite side of their horse, keeping their heads and torsos covered. Attorneys have used the expression “stalking horse” to describe a process meant to assure a competitive dynamic when assets of the debtor are to be auctioned, maybe in an effort to make bankruptcy law appear more concrete or thrilling.
Before the auction, the debtor will appoint a stalking horse bidder who will bid on the assets to be auctioned in order to ensure that a competitive minimum price is achieved for the assets being sold.
Why it’s advantageous to be a stalking horse
Frequently, if they are not picked as the winning bidder at the conclusion of the auction, stalking horse bidders obtain direct monetary advantages, such as breakup fees, repayment for expenditures used in preparing the room bid, and topping fees. Courts and other stakeholders may attempt to limit these advantages to the degree that they have the effect of discouraging other bidders from participating in the auction. An excessive topping fee (which must be paid when the stalking horse is outbid) or breakup fee that is disproportionately high in relation to the total asset value may force other bidders to exceed the stalking horse’s bid by an amount that makes the deal uneconomical for them to compete for the asset.
- It’s improbable that any subsequent bidder will be willing to spend more than US$1,000 over the blue book market value for the property.
- The debt may attempt to negotiate a reduction in the proposed breakup fee, maybe to US$1,000, in order to assure that a later bidder will still be compelled to offer because the price will still be at or below market.
- Auctions of a debtor’s assets are frequently held in a short period of time, which makes it difficult for buyers to conduct the necessary research before submitting a bidding offer.
- A thorough due diligence process is especially critical when acquiring an asset from a bankrupt firm, because the seller will almost certainly be unable to compensate you if unanticipated obligations are discovered after the sale has been completed.
- It is possible that the corporate team will represent a significant amount of the value of the asset being acquired, depending on the nature of the transaction.
An earn out structure (in which the final amount paid can be decreased if an acquired firm does not meet specific revenue or profit objectives) may, for example, be significantly less hazardous than a lower purchase price that must be paid in full regardless of the performance of the assets purchased.
The stalking horse bidder has the ability to negotiate with the debtor regarding the terms and form of the purchase contract, and he or she may also request that specific bidding methods be included or excluded from the future auction.
Not every horse wins the race
The use of horses for transportation across a grassland is excellent, but they are less effective when confronted with a steep slope or an unforeseen ravine. When it comes to bankruptcies, they may be as unpredictable as unfamiliar terrain itself, and the stalking horse may regret it hadn’t gotten ahead of the pack in the first place if they are not prepared. It is possible that the debtor and other stakeholders (such as the creditors committee) would advocate for an absolute cap on expenditure reimbursement when stalking horse bidders negotiate expense reimbursement, for example.
- If, in the end, the stalking horse bidder is not the successful bidder at the auction, the stalking horse bidder will have suffered a financial loss owing to insufficient expenditure reimbursement.
- In most cases, purchasers desire to hold off on acquiring an item for as long as possible in case the market value of the asset changes in the meantime.
- The stalking horse bidder will be forced to consummate the deal at a price that is likely to be higher than the market value at the time of the auction if the value of the underlying asset being sold falls between the commitment date of the stalking horse bidder and the actual auction.
- Following several rounds of back-and-forth bidding at the final auction, if the stalking horse is unable to gently put together the remaining funds to complete the purchase, it may forfeit its deposit.
Bidding money that you already spent
Section 363(k) of the Bankruptcy Code provides secured creditors with the ability to bid on and “pay” for a company’s assets using money that is already owing to the creditor under certain circumstances. A secured creditor may be willing to sell their secured claim against a debtor to a third party at a discount in the event that they do not desire on the underlying asset, and the third party can use the credit as a stalking horse bidder. Consider the following scenario: a bank has a debtor owing US$200,000 secured by construction equipment, but the bank does not want to be the owner of the construction equipment at the end of the day.
Another party who is interested in purchasing the construction equipment may be able to persuade the bank to sell its US$200,000 claim at a large discount (for example, US$100,000) in exchange for the bank’s receipt of cash in a short period of time.
If the third party is the successful bidder in the auction, it will have effectively paid US$100,000 for the underlying asset in the process.
As a result, the stalking horse would receive a magnificent financial return: payback of the whole US$200,000 claim that the stalking horse had acquired from the initial creditor, the bank, for just US$100,000.
Beware of the endgame of opportunistic wonders
DIP (Debtor In Possession) finance is a type of loan made to insolvent firms by lenders that specialize in this type of lending. The underlying objective is to either earn an outsized return or to acquire the assets of the debtor at a price below market value. During the negotiation process with a prospective DIP lender, the debtor and other stakeholders should be on the lookout for penalties and fees that are buried in the loan agreement and penalize the debtor if the underlying assets are sold to anybody other than the DIP lender.
Balancing business needs and legal risk
As in-house counsel, your colleagues are turning to you for guidance on whether or not they are taking on too many risks in relation to the potential value they will receive in return. If your team is considering putting together a stalking horse proposal, you should have a speedy due diligence checklist on hand and be prepared to place potential prices on the additional risks you may incur as a result of being the first to submit a bid. In comparison to later bidders, consider how much less the stalking horse bidding entity will bid.
Ensure that you are prepared to discuss with your colleagues both the possible costs of risks and the likelihood of those risks based on historical evidence.
Consortium makes ‘stalking horse’ bid for upscale fashion retailer
BCBG Max Azria Group LLC is being given a second chance to save its brand from extinction. A group led by brand licensor Marquee Brands LLC is planning a stalking horse bid for BCBG Max Azria Group LLC, according to sources familiar with the situation. According to Reuters, if this approach is successful, it will help the American design brand to emerge from bankruptcy. The story cites sources who claim that Marquee has formed a partnership with Global Trademarks Group Holding Limited, a spin-off of global exporter LiFung Ltd., which already has a license relationship with BCBG for some of the company’s brands.
- In addition to buyout company Sycamore Partners and brand licensor Bluestar Alliance LLC, according to the report’s sources, there are other prospective bidders.
- This stalking horse bid would serve as a floor to deter low-ball offers among competing proposals in a bankruptcy auction by setting a minimum price.
- The business, which filed for Chapter 11 bankruptcy protection in March, cited assets in the range of $100 million to $500 million and liabilities in the range of $500 million to $1 billion on its financial statements.
- Currently, BCBG maintains 73 retail locations and 276 partner shops around the country.
According to the source, if the proposal is approved, the company would be able to escape bankruptcy with a footprint of 15 to 20 stores. BCBG has not responded to the claim or acknowledged it in any way. More information may be found by clicking here.
What’s a stalking horse bid?
The winner of the Kentucky Derby and a contender for the Preakness After working out at Pimlico Race Track in Baltimore, Maryland, on May 13, 2009, Mine That Bird is handled by Double Eagle Ranch farm manager Kelly Dennington as he is being cleaned. The 134th running of the Preakness Stakes will take place on May 16th in Baltimore, Maryland. Molly Riley for Reuters (UNITED STATES SPORT HORSE RACING IMAGES OF THE DAY) Reuters What is a stalking horse bid and how does it work? A stalking horse bid is an early approach to purchase an asset from a firm that is in financial crisis (most often one that is bankrupt or in bankruptcy protection).
- The goal is to establish a minimum price for the asset by putting out a first offer in the open market as soon as possible.
- If the stalking horse bidder does not wind up being the final winner, the stalking horse bidder is normally compensated with a break fee.
- Originally, a stalking horse was a horse, or something that looked like a horse, that was used by hunters to move across a field.
- It has come to refer to anything that is put up or presented anonymously or through a third party in order to test the waters or conceal the true nature of the proposal or plan.
- The concept of a stalking horse bid is a relatively new concept.
- What locations have you seen the process utilized recently?
- Avaya Inc., the stalking horse bidder for Nortel Networks’ enterprise division, just won the final auction for those assets, defeating a field of other bidders.
Predators’ future at stake in court fight
In San Francisco, a U.S. bankruptcy court will begin hearing arguments on Monday on the future of the Nashville Predators, including the enticing potential that the team would eventually relocate to Hamilton. Those who he owes millions of dollars will begin to confront disgraced banker William (Boots) Del Biaggio III, a former minority owner of the NHL team, on that date. And keeping an eye on things from a distance will be Research In Motion co-founder Jim Balsillie, who has been repeatedly unsuccessful in his efforts to bring a second NHL club to southern Ontario.
- dollars) and have presented a bleak picture of probable losses that calls into doubt the team’s long-term sustainability, are among those lined up for the courtroom.
- Craig Leipold, the owner of the Minnesota Wild, was forced to pay $10 million in damages.
- Luc Robitaille, a former L.A.
- It is expected to be a lengthy and drawn-out struggle, with numerous creditors asserting a variety of claims against Del Biaggio, while attorneys square off against accountants and attempt to stickhandle their way past the court in the process.
- In addition, a finance business will argue that it should be reimbursed for the $90,000 Mercedes-Benz it purchased.
- 21 that this should be a Chapter 7 bankruptcy rather than a Chapter 11 bankruptcy, which would give creditors greater power over Del Biaggio’s estate and, in turn, might speed up the liquidation process.
- On Nov.
Taking this step might put him at conflict with other creditors, who may be hoping for a high sale price for the stock in order to secure more money for themselves in exchange for it.
How did Del Biaggio trick them into believing he was in possession of money?
Finally, the court may decide to auction off Del Biaggo’s ownership part in the Predators to the highest bidder.
If the court finds the NHL’s ownership approval process to be unreasonable, the court has the authority to sell the team to the highest bidder regardless of the wishes of the NHL, according to Chicago-based bankruptcy lawyer Douglas J.
“The court has the authority to sell it to any bidder regardless of the wishes of the NHL,” Lipke said.
One has supposedly been discovered, and it may or may not be Balsillie in disguise.
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Canwest puts newspaper division under court protection as prelude to a sale
TORONTO, ONTARIO — It has been announced that Canwest Global Communications (TSXV:CGS) has placed its cross-Canada newspaper network under creditor protection and will put it up for sale next week. A group of lenders led by the country’s largest banks is preparing to launch the bidding process. According to a statement released Friday, the Winnipeg-based broadcaster and publisher of the National Post, as well as major-city daily and websites from Vancouver to Montreal, has achieved a restructuring arrangement with its creditors, who are primarily the company’s lenders.
- During an interview, Canwest spokesperson John Douglas stated that the company had “nearly half of the secured lenders” who are “not only supportive of a consensual financial restructuring, but the same group.
- In addition, Canwest’s $4 billion in debt from previous acquisitions resulted in rising losses, making it hard for the company to remain out of the hole it found itself in.
- The Post Office, on the other hand, will be included in the transaction.
- (TSX:OCX), a Canadian investment corporation, as well as some of Canada’s major pension funds and leveraged buyout companies, have been rumored to be interested in purchasing Canwest’s newspaper division.
- Due diligence determined that acquiring the entirety of Canwest LP’s business would be beneficial due to the operating synergies that can be realized from a national newspaper and online business, the lenders said.
- In addition, Douglas stated that the corporation is already aware of a number of potential purchasers, though he would not specify how many would participate in the auction process.
- Canwest has also secured up to $25 million in financing from its senior lenders to help fund the acquisition.
- Canwest eventually obtained approval to transfer the National Post as a distinct legal company to the bigger newspaper group — despite widespread speculation that all of the properties will be auctioned off at the same time.
- Putting the newspaper business under court protection, Canwest said, was in the best interests of the firm and the 5,300 workers who work in its publishing activities.
- Canwest also owns significant daily such as the Montreal Gazette, the Ottawa Citizen, the Calgary Herald, the Edmonton Journal, the Victoria Times-Colonist, and two Vancouver dailies, the Sun and the Province, in addition to the Post.
- Canwest, like many other media organizations, has been adversely affected by the recession’s impact on sales of newspaper and television advertising, which are the company’s primary sources of income.
It was nearly bankrupted by a mound of debt that had accumulated over the previous decade as it grew beyond the initial Global Television business by acquiring a large portion of Hollinger Inc.’s Canadian newspaper business, among other acquisitions.
Is Infantilism the Key to KAWS’s Unstoppable Rise? Kenny Schachter Peers Behind the Scenes at the London and Hong Kong Auctions
It remains to be seen whether or not we are living in the most bizarre and turbulent economic, social, and political period in history, but there’s no disputing that it certainly seems that way right now. I have seen evidence of unprecedented unpredictability in the art world, and at such a moment, the deceit whirling around the market appears to reach dizzying heights, according to what I have observed. It is directly proportional to the amplification of lies—and I have personally witnessed more fabrications (not of the Jeff Koons variety, though I have seen those as well) in the past three years than I have in the previous thirty—that there has been an increase in sleazy behavior on the part of the public.
Ron Hubbard adherents refer to it) permits Scientologists to see the thoughts of initiates, which is particularly useful for those under time constraints.
But you don’t need an E-anything to figure out what (most) art dealers want from you: they want what’s in your pocket, and they’re willing to go to any length to get their hands on your money.
This device comes in handy more and more often these days. Artwork by Kenny Schachter.
A BBC documentary by Vanessa Engle, titled “The $50m Art Swindle,” was shown last month and detailed the activities of French art dealer Michel Cohen, who in actuality stole $55 million while running a gallery in New York in the 1990s before fleeing the country. (I’m guessing that number doesn’t come out as easily as the last one.) In many ways, the documentary could have been about a handful of art operators I know, especially when it comes to Cohen’s lack of remorse or even recognition that he had done anything wrong, given that, as he points out, no one was harmed or forced to change their lifestyle as a result of what he did.
Cohen believed he was going to pay everyone back, but he had simply lost all of his money (via the trading of stock options) and had no way of making any more money in the future.
I am the bottom of the top of the bottom. Courtesy of the Art Gorgeous.
I have repeatedly stated, largely in jest, that the art industry is a quagmire of corruption, an observation that has proven to be painfully true throughout the course of my career. I used to be cynically optimistic about the condition of the arts; these days, I’m not so sure. Don’t get me wrong, I care deeply and will continue to do so indefinitely, but the joy is waning. A vitrine at a natural history museum should be reserved for those who appreciate art for its own purpose rather than as a means of making quick money (or at least trying to do so).
Among the billionaires in the technology industry is one who solely purchases artwork featuring iPhones or computers.
It is possible for flippers to obtain primary works through their advisors, through contacts with galleries as a result of their wealth and/or celebrity, or through outright deception. Alternatively, you may do all of the above.
Art appreciation, auction-style. Tracey and the Chapmans. Photo courtesy of Kenny Schachter.
Unknown to me, a hedge-fund manager recently purchased work by a hot young artist of color (and being female or black certainly helps in that department nowadays) from a gallery show and then promptly resold it the same day he received his invoice, all while the painting remained on the gallery’s wall. As an example, I am aware of a double-dealing dealer who recruited a friend to engage a LA adviser on his behalf, but was caught when the stalking horse accidentally left a message for his friend regarding their plan on the advisor’s phone, which was later discovered.
- Please keep this information strictly secret.
- Do you believe you’ll be able to sell it in the near future or in the far future?
- There appear to be just a few beautiful copies available, yet they are not too pricey for a top-class youngish artist of this degree.
- What is it about folks who have a lot of money that makes them act in this way?
From the Collection of a Distinguished Belgian Flipper, for example, may be the title for the impending auction: Infantilism (the preservation of childlike characteristics in maturity) appears to represent the thinking of individuals who support market phenom Brian Donnelly, better known “professionally” as KAWS, according to some reports.
(After all, KAWS has amassed a substantial fortune by reusing cartoon characters from the childhoods of many of his collectors).
Naturally, that outcome was quickly overturned in Hong Kong (see below), where you had to literally walk over demonstrators to get inside the auction rooms.
Per, on the other hand, has been churning out a flurry of terse legal letters in an attempt to enforce the non-resale restrictions contained in his bills, which has been fruitless.
For now, though, let’s talk about Sotheby’s London, where I overheard a “expert” strolling past the highlighted Jean-Michel Basquiat cover lot and praising it to a possible Middle Eastern bidder as “what’s known as a trophy piece, a work that you simply must have.” However, the Italian owner who sold it did not believe this, despite having previously rejected down $13 million in offers from Gagosian and a $10 million guarantee the day prior to the sale.
The picture was sold for £8.5 million (or $10.4 million) less than the low reserve of £9 million, resulting in the auction house having to make up the difference between the two prices.
Gallery workers display Banksy’s ‘Devolved Parliament’ prior to a photo call at Sotheby’s on September 27, 2019 in London, England. Photo by Peter Summers/Getty Images.
Then there’s Banksy’s Devolved Parliament, for which the same expert used the term “renowned” a total of ten times to make his client more comfortable with it. “This is simpler for us to grasp than the Basquiat,” the Middle-Easterner responded. The Sotheby’s employee (of the month?) went on to narrate the narrative of Banksy’s shredding act last year, which made the constrained piece “famous and iconic” and instantly increased the price of the constrained work. He went on to say that there was a banana concealed somewhere in the composition, despite the fact that it was clearly apparent in the hand of one of the monkey legislators (see image below).
Okay, that’s OK.
Despite the fact that he did not win the painting (which sold for a laughably low $12 million), he was successful in avoiding what economists refer to as the “winner’s curse,” which is the tendency for the winning bid in an auction to exceed the intrinsic value of the item due to incomplete information, a flood of emotions, or any other number of subjective factors, among others.
- Getting back to KAWS (and, eventually, to Hong Kong), the artist has already had 888—yes, eight hundred and eighty-eight!—works sold at auction in 2019 alone, with over three months left in the year.
- His paintingKimpsons1 sold for a record $6.1 million to $8.67 million at Sotheby’s Hong Kong, setting a new high-water mark for the auction house.
- “Woman” was described by the Sotheby’s employees as “the equivalent of a Cubist Picasso or a de Kooning.” The auction house’s personnel worked really hard to get this award, and they deserved it.
- It sold for $7.4 million dollars.
- I’m almost finished with this.
The painting, which originally sold for $20,000 in 2000, was last sold for $3.3 million in 2016 to our friend Damian Delahunty and a London-based partner, who then sold it on to Delahunty’s client Mark Scheinberg, an Israeli-Canadian businessman and co-founder of the online gambling company PokerStars, which was sold to Amaya Gaming for $4.9 billion in 2014.
By the way, I have never come across a female flipper throughout my travels.
However, because Sotheby’s is still an American company—as opposed to Christie’s—don’t expect too many changes in the form of public disclosures, other from the elimination of dead weight and the placing more stock (figuratively speaking) in the digital domain, which is one of Drahi’s strengths.
Sotheby’s has also suspended payment conditions for successful bidders in the upcoming November auctions, as well as implemented a policy of less risky guarantee transactions, all of which should result in a decrease in bidding interest in the next sales.
Frayed around the edges, like the art economy. Leave me alone about it next time you see me please. Photo courtesy of Kenny Schachter.
Finally (and you can breathe a sigh of relief), for those who believe that hopping from fair to auction to biennial is akin to switching seats on the Titanic, this intrepid correspondent will not be deterred by snow, rain, flu (achoo), or the gloom of mediocre art from completing his assigned art rounds as quickly as possible (albeit Hong Kongis a step too far, even for me). Like the Energizer Bunny, the stock market appears to be unaffected by the passing of time. I’ll see you at FIAC next week, then at the November New York auctions, and then at Miami Blahsel, despite the fact that my patience is as frayed as my omnipresent track-suit bottoms (as everyone feels inclined to point out to me).