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What Is a Stalking Horse?

A company close to bankruptcy might use the stalking horse strategy.
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  • Written By: M. Rosario
  • Edited By: Susan Barwick
  • Last Modified Date: 14 July 2014
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A stalking horse is the name given to a role in a strategy in which a decoy is used to gain an advantage in a particular situation. The term stalking horse comes from a hunting strategy in which the hunter hides behind his horse to gain favorable distance between the prey before attacking. In modern times, the stalking horse is a business and political strategy of using a third party to test the waters.

In business and politics, another party, usually working incognito, proposes ideas on behalf of the original party. In this scenario, the "horse" is typically used as bait or as a distraction to mask the real intentions of the larger player, the "hunter."

A senior politician may get a lower official to do a task that the he or she cannot be discovered doing. The lower official may be used to tarnish the reputation of another official, leading to the removal from office of the accused official. The senior politician then acquires the position that was occupied by the disgraced official without being seen as being responsible.

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In business, this strategy can be used by a larger company to test the waters for the takeover of another company or a company close to bankruptcy. A company close to bankruptcy might use the stalking horse strategy itself. The "horse" for the bankrupt company makes a first favorable bid, preventing subsequent low bids. The strategy provides a safety net for the company facing bankruptcy, lessening the consequences of failure. The horse, on the other hand, will take the full blow if the plan does not work out.

There are many reasons why a party might be willing to be the sacrificial horse. The horse, more often than not, knows that their hunter has the means and power to reward him if the plan succeeds, even in the event of failure. As such, being the stalking horse normally creates a win-win situation for the horse.

In business, the horse may be a weaker company that wants a larger share of the market because of the target company's demise. In politics, the horse may be a junior official, who seeks patronage and power from the senior official. The horse may also participate because of loyalty. He might be someone who is about to retire and wants to go out gaining some attention for himself or who wants to pay back a favor.

There are pros and cons to this strategy. The stalking horse can ideally protect the original player from unnecessary risks and ensure that it receives the intended result from the venture. The horse, in most cases, is well compensated. It is possible, however, for the strategy to cause unfortunate consequences if the move proves unfavorable.

Some consider using a stalking horse to be unethical, both in business and politics. Should the strategy be discovered, the consequences can be extremely detrimental for the hunter.

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