what is a stalking horse bid

A stalking horse bid is an initial bid on the assets of a bankrupt company that sets the low-end bidding bar so that other bidders cannot underbid the purchase price. The term "stalking horse" originates from a hunter trying to be concealed behind either a real or fake horse. The intent of a stalking horse bid is to maximize the value of the bankrupt companys assets or avoid low bids, as part of (or before) a court auction. The initial bidder with whom the debtor negotiates a purchase agreement is called the "stalking horse" bidder. The stalking horse bidder is afforded various incentives, such as expense reimbursements and breakup fees, to compensate for the time and effort expended in negotiating the deal, performing due diligence, and otherwise setting the "floor" for the terms of the transaction. The stalking horse sets the floor price for other bidders in an auction, but the initial bid may be outbid by competing bidders, and the stalking horse may miss out on the acquisition.