While running the risk
of being trumped by
a higher bid, there are
distinct advantages for a
prospective purchas-
er to be the stalking
horse bidder.
Other issues that debtors and other
stakeholders may confront in running an auction for a 363 sale include
how to evaluate (i) bids with non-cash
consideration such as stock or notes;
(ii) offers for less than all of the assets;
(iii) offers that exclude certain liabilities such as labor agreements, pension
plans, or employee benefit plans; (iv)
material closing conditions, such as a
“MAC” or financing out; (v) purchase
price adjustments; and (vi) cure costs
and damage claims in connection with
executory contracts and leases.
The 363 Sale Process
While not addressed in the Bankruptcy
Code, as the practice has evolved, the
first step leading up to a 363 sale is most
typically for the debtor to attempt a
“mini-auction” or competition between
potential purchasers of the company,
to select one bidder to be the “stalking
horse” bidder (recognizing that in many
cases there in fact may only be one po-
tential bidder thereby avoiding the need
for this initial step). As the name implies,
the purpose of the stalking horse bidder
is to set the “floor” for the bidding at the
sale that is to follow. By selecting a stalk-
ing horse bidder, the debtor increases
the probability of closing a sale and at
the same time establishes the basic eco-
nomic terms for other potential bidders
to beat. The company and the stalking
horse typically negotiate the bidding
procedures, an asset purchase agree-
ment and other key commercial terms of
the sale.
