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What Is A Stalking Horse? - YouTube
Channel: Ira Smith
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what is a stocking horse a complete
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process the chef needed to use what is a
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stocking horse bid
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in the 16th century the term originated
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it originally was a replica of a horse
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or something that looked like a horse
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that was set out by hunters in an area
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they wished to hunt in
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by hiding behind it the hunters wouldn't
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have to worry about scaring away
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whatever was being hunted
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today it means anything that is put
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forward or proposed to test the waters
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or mask the true nature of the proposal
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it is much more recent to think about a
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stalking horse bid
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its name comes from the fact that it is
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a way to draw other bidders out of the
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woods and test their level of
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seriousness in participating in a sale
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process and making a bid for the assets
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being sold
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in this brand and blog i describe an
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ontario court decision denying the
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request of a company under bankruptcy
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protection to sell its assets and if the
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company only had known what is a
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stocking horse bid and used it
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the company of celebrity chef mark
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mcewen files for creditor protection on
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september 28 2021 mcewen enterprises inc
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may a premier hospitality company based
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in toronto ontario obtained protection
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under the company's creditors
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arrangement act ccaa with a list of more
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than 10 million dollars in liabilities
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the company was founded by chef mark
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mcewen in his early career chef mcewan
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worked as an executive chef at toronto's
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sudden place hotel
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in addition to mentoring budding chefs
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in his kitchens chef mcewen is also a
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judge on food network's hit series top
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chef
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may at one time ran multiple dining
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establishments and gourmet grocery
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stores in addition to a catering service
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due to the negative impact on the
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hospitality industry of the coronavirus
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may experience significant losses and
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business challenges and found itself
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filing for bankruptcy protection under
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the ccaa
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the owner of the bloor young location
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opposes ccaa restructuring by celebrity
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chef mark mcewen may's restructuring
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plan presented for bankruptcy court
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approval would involve fairfax financial
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holdings limited and mcewen repurchasing
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the business under a specific asset
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purchase agreement by a new numbered
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company
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with fewer grocery and restaurant
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locations the business would retain its
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268 employees and reduce lease
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obligations
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the company's restructuring plan in the
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ccaa proceedings focuses on affecting a
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going concern sale transaction
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that is selling and transferring
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substantially all of its assets and many
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of its liabilities to a new entity
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formed by may's current shareholders
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fairfax financial holdings limited in
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chef mcewen
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one of may's creditors the landlord of
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the bloor young grocery store opposed
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the plan
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based on its analysis of the situation
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the court found that the proposed
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transaction did not meet the ccaa's
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requirements for approval
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consequently the sale the centerpiece of
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the restructuring plan failed to get
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bankruptcy court approval from the
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bankruptcy judge
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what is a stalking horse why did may's
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proposed bankruptcy sale process fail
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may's legal and financial advisors are
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excellent they probably told chef mcewen
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the may restructuring plan as presented
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to the court had little chance of
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success
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it would shock me if they didn't because
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i am not involved in the may caa
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proceeding i can only guess that chef
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mcewen ignored his advisors counsel
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ignored financial and legal advice
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rolled the dice and lost
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jeff mcewen swore affidavits as part of
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may's court application according to him
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may's value and success are dependent
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upon his continued involvement the may
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brand has become synonymous with his
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personal brand and television projects
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by inference he implied that he would
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not cooperate with any third-party buyer
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who would therefore not have his
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involvement and in his view a
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third-party sales process was not
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necessary and could negatively affect
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the company's operations i think it is
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never wise to go into court with a smug
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attitude or threaten non-cooperation
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with a third party in addition to the
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legal issues i will explain shortly
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if may had used a real bankruptcy
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auction process and a higher bidder was
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able to pay the amount of the purchase
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the court would not care whether chef
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mcewen would work for the new owner if
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it was not a condition of the potential
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purchaser's offer
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section 36 4 of the ccaa was at issue
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section 36 3 refers to the factors that
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a court should consider when considering
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a specific sale transaction
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there a reasonable process led to the
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proposed sale or disposition in the
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circumstances did the monitor approve
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the process is the monitor submitting a
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report to the court indicating that a
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sale or disposition would be more
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beneficial to the creditors than a sale
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or disposition under a pure bankruptcy
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liquidation to what extent have the
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creditors been consulted how the
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proposed sale or disposition will affect
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creditors and other interested parties
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considering their market value determine
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whether the consideration to be received
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for the assets is reasonable and fair
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in this case the purchaser was to a
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related party as described in section 36
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4 of the ccaa
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according to the law a court may grant
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authorization only if it is satisfied
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that the assets were tried to be sold or
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otherwise disposed of to non-related
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parties in good faith in accordance with
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the process leading to the proposed sale
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or disposition it offers a greater
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consideration than any other offer
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this was not the case with may i won't
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go into all the reasons for maize ccaa
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bankruptcy sale failure in this what is
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a stocking horse brandon blog as you can
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read all about them here
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the bankruptcy judge determined that the
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facts of the case do not meet the
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requirements of section 36-4 thus the
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proposed transaction cannot be approved
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accordingly it was dismissed what is the
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stalking horse the competitive bidding
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process chef mcewen should have used the
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fatal flaw in may's application for
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approval of the offer was their
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inability to prove to the court that
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there was not an even better offer in
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the marketplace because there was no
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sales process possibly being an auction
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process
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chef mcewen should have used his offer
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as a stocking horse bid in a competitive
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auction process
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he would have sought court approval for
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a court supervised auction type process
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as long as they were fair he could have
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set the bidding procedures the bidding
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process timelines and the bidding range
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through his stalking horse offer and
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have the court approve it all at the
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bidding procedures hearing
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his offer would be exposed to the market
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and he might be outbid
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however he was still in control of
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setting his offer in terms of his
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approach he chose to put may under the
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ccaa process but once there he had to
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adhere to the rules of that process
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how could a stocking horse bidding
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process possibly work let's find out
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what is the stocking horse a court
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supervised auction for bankruptcy sales
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typically the debtor executes a binding
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stocking horse agreement with a
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purchaser against which higher and
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better offers can be solicited and which
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stipulates that the stocking horse will
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be considered the highest and best offer
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if no competing bids are received
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in order to achieve that goal the debtor
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will ask the bankruptcy court to approve
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a competitive auction process and
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related bidding procedures
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an organization in distress can use the
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stocking horse bid method to avoid
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receiving low bids when selling its
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assets
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stocking horse bids are initial bids on
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insolvent company assets setting a
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low-end bidding bar prevents other
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bidders from under-bidding the purchase
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price
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those wishing to participate in the
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stocking horse bid process and submit an
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offer after performing due diligence
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must submit a better offer than the
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stocking horse bid
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what is the stocking horse and what are
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the advantages and disadvantages of a
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stocking horse bid
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there are certain advantages for a
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stocking horse bidder since the stocking
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horse bitter is the opening offer that
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sets the floor price for the assets or
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company the insolvent company usually
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provides several incentives
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to begin with the stocking horse bidder
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has the opportunity to negotiate the
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legal and financial terms of an asset
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purchase agreement with the debtor that
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will serve as the floor price
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thus the stocking horse bidder does not
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simply enter into an agreement
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negotiated by someone else that might
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not be exactly what it needs
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in addition the stocking horse bidder
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may negotiate bidding options that
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discourage competitors from bidding
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although the entire process needs to be
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fair to all parties
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thirdly a stocking horse bidder gets to
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perform its due diligence first
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the due diligence process involves
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verifying investigating or auditing all
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relevant facts and financial information
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of a potential deal or investment
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opportunity
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however there is still a chance that
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someone else may outbid the stalking
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horse offer and if they want the assets
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badly enough they may even bid more than
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the liquidation value
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in the may case may failed to prove that
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accepting its offer would be better than
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liquidation through a receivership or
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bankruptcy proceeding
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this was another may flaw even if that
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were to happen stalking horse offers
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always contain a break fee
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when someone else wins this money will
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be awarded to the stocking horse bidder
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it must be possible to pay the break fee
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and still have a better offer than what
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the stocking horse bidder offered
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as part of the stocking horse bidding
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process the break fee is meant to
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compensate the stocking horse bidder for
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the time spent and as an expense
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reimbursement for the professional fees
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spent on doing their due diligence and
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allowing their offer to sit out there
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for everyone to see
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all the remaining steps follow a typical
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auction where the highest bidder wins
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the distressed company's assets
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what is a stocking horse recent
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well-known canadian example thanks for
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asking the court supervised auction of
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insolvent entertainment company cirque
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du soleil was conducted based on an
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offer made by cirque du soleil's secured
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creditors
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that creditor proposal replaced a
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shareholder offer as the stocking horse
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bit which set the minimum requirements
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for potential rival bids
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also included in the successful bid was
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serk's commitment to maintaining its
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headquarters in montreal for at least
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five years
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the stocking horse sales process is well
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known in canada bankruptcy courts as you
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can see
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in this process the stalking horse
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bidder gains certain advantages while
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the distressed company and its assets
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are exposed to the market
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after a public auction sale the court is
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able to determine if there is there is
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not a better offer out there under a
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previous bankruptcy court approved sales
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process
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so i hope that you can now answer the
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question what is the stocking horse
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what next for the chef i guess it's time
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to start fresh most of the time and
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money spent so far has been in vain
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if may wants to make another shareholder
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offer it will have to prove to the court
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that it met all the ccaa requirements
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what is a stalking horse summary i hope
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you found this what is the stocking
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horse brandon blog informative
[630]
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