Toys.com will be auctioned again; Faculty Lounge will be stalking horse bidder.
Domain Name Wire has learned that the sale of Toys.com has been halted by the bankruptcy court and the domain name will be auctioned again. Faculty Lounge, the company that won the domain name at auction earlier this month, will be a stalking horse bidder in the auction.
Eli Columbus, a shareholder in Winstead PC’s Business Restructuring/Bankruptcy Practice Group (which is not involved in the case), explained that a stalking horse bidder typically sets the floor in an auction, and typically receives additional rights in return.
“You have a bidder committed to buying an asset at a certain price,” said Columbus. “They’re setting the bar. The benefit to the bankruptcy estate is you know you have a buyer at a certain price, and it generates some interest.”
If Faculty Lounge doesn’t win the domain name in the new auction, it will likely receive some sort of compensation. “From the stalking horse bidder perspective, there are typically some incentives in the auction procedures,” said Columbus. “A lot of times the court will approve a break up fee if they aren’t the successful bidder. This usually covers at least the stalking horse bidder’s fees. In some cases the break up fee will be a percentage of the sale price.”
Bankruptcy courts sometimes block asset auction sales if they believe the assets weren’t marketed in a way that achieved the highest results. As I wrote in an article yesterday about DONE! Ventures’ purchase, I’m not surprised that there has been a challenge to the Toys.com sale. Few companies knew about the eToys auction, and the prices on some of the domain names were well below market prices.