Skip to main content
the explainer

Kentucky Derby winner and Preakness hopeful Mine That Bird is held by Double Eagle Ranch farm manager Kelly Dennington while he is washed after working out at Pimlico Race Track in Baltimore, Maryland May 13, 2009. The 134th running of the Preakness Stakes will take place on May 16. REUTERS/Molly Riley (UNITED STATES SPORT HORSE RACING IMAGES OF THE DAY)Reuters

What is a stalking horse bid?

A stalking horse bid is an initial proposal to buy an asset from a distressed company (most often one that is bankrupt or in bankruptcy protection). Usually, the company or its receiver will select a buyer willing to make an offer. The idea is to establish a minimum price for the asset, by getting a first bid out in the open. This keeps lowball offers off the table and sets up a competitive bidding process. The stalking horse bidder usually gets a break fee if it doesn't end up as the eventual winner.

Where does the term come from?

A stalking horse was originally a horse, or something that looked like a horse, that was set out across a field by hunters. The hunters would hide behind it, so that whatever they were hunting would be less likely to get spooked. It has evolved to mean anything that is put forward or proposed anonymously, or through a third party, to test the waters or mask the real plan. The term "stalking horse" originated way back in the 16th century. The idea of a stalking horse bid is a lot more recent. It is called that because it is a way to draw other bidders out of the bushes.

Where has the process been used recently?

There was talk of using a stalking horse bid to set up a sale of some of General Motors' assets when the car maker was in bankruptcy protection last spring. Recently, the stalking horse bidder for Nortel Network's enterprise business, Avaya Inc., won the final auction for those assets.

Interact with The Globe