Opinion ID: 1380390
Heading Depth: 3
Heading Rank: 1

Heading: Was a break-up fee needed to induce the first bid?

Text: Kelson's bid undoubtedly provided a benefit to the estate by establishing a minimum price and a complete set of offer terms and, in fact, the Bankruptcy Court required that any competing bid exceed Kelson's bid by at least $5 million. Indeed, it is plausible to believe that an initial bid, ordinarily or perhaps even always, will provide a benefit to an estate because it will establish a floor price for the assets to be sold. But we have to decide a different question, i.e., was an award of a break-up fee necessary to produce this benefit and preserve the value of the estate? We recognize that the first bidder in a bankruptcy sale necessarily takes a risk at least to the extent of investing the time, money and energy needed to produce its bid. [10] Nevertheless, while we understand that the first bidder may be motivated in part to submit its bid by the possibility that it will receive a break-up fee, it does not follow from that motivation that the bidder will withdraw its bid, pass up on the opportunity to acquire the asset to be sold, and nullify its work in preparing its bid if a court, when ordering that there be an auction of assets, declines to authorize a break-up fee to be paid to the initial bidder. Surely O'Brien makes that clear because even though Calpine had made its bid contingent on the award of a break-up fee, it competed at the auction after the Bankruptcy Court rejected the request for a break-up fee. Here, however, Kelson argues that the provision of a break-up fee was necessary to entice it to bid, but the facts do not support this argument. We are satisfied that it is clear beyond doubt that Kelson did not condition its bid on the presence of a provision for a break-up fee, although it did condition the bid on the Debtors' promise to seek authority to pay it such a fee. Thus, section 8.1(d) of the APA provided that Sellers shall ... file a bidding procedures motion with the Bankruptcy Court ... seeking the entry of an order approving the bid protections. App. at 288 (emphasis added). These bid protections included the break-up fee. Accordingly, there is no escape from the fact that Kelson did make its bid without the assurance of a break-up fee, and this fact destroys Kelson's argument that the fee was needed to induce it to bid. [11] Rather, the mere possibility of the payment of a break-up fee was sufficient for that purpose.