What is a "stalking horse bid"?

A "stalking horse bid" refers to an initial bid made for a company's assets, often in the context of a bankruptcy proceeding or a distressed sale, that sets a minimum price or "floor" for subsequent bids. This initial bid helps to establish a baseline value for the assets, which can encourage competitive bidding and ultimately serve to maximize the value of the company's assets for the benefit of creditors and stakeholders.

The stalking horse bidder often has advanced rights, such as potential negotiating protections or a chance to finalize the purchase if no other higher bids come in. By doing so, it brings transparency and structure to the bidding process, allowing other interested parties a clear understanding of the value that has been established. This is especially crucial in restructuring situations, where asset values can be uncertain.

The other options do not accurately capture the essence of a stalking horse bid. An offer to buy company assets at their current value does not entail the competitive advantage brought by setting a floor for bidding. A final bid made by creditors would not serve the purpose of stimulating competitive offers, and a bid made by a company to prevent bankruptcy does not reflect the specific role of a stalking horse in the bidding process during financial distress situations.