Simon Properties Sues in US Court to Cancel $3.6B Acquisition of Taubman

The COVID-19 pandemic drove the biggest drop in US retail sales ever during April, and now the coronavirus has also killed off the country’s largest mall developer’s appetite for a $3.6 billion merger.

Simon Property Group in a 202-page declaratory suit filed Wednesday asked an Oakland County, Michigan judge to nullify its agreement to purchase Taubman Centers, citing a drop in the New York Stock Exchange-listed shopping centre specialist’s business caused by COVID-19.

The suit comes after US Department of Commerce figures issues last month showed that retail sales fell 16.4 percent in April — the steepest drop since the government began reporting such data in 1992.

Simon Faults Taubman’s Pandemic Response

Indianapolis-based Simon cited the “material effect clause” of the agreement, which specifies remedies in the case of a pandemic or other excluded events, as justification for nullifying the deal signed between the two rivals in February of this year.

In a statement, the company noted that, “The Merger Agreement specifically gave Simon the right to terminate the transaction in the event that a pandemic disproportionately hurt Taubman.”

Simon’s representation, New York City litigation firm Paul Weiss Rifkind Wharton & Garrison, argued that the coronavirus crisis hit Taubman especially hard because the Bloomfield Hills, Michigan firm owns properties in densely populated areas that depend on tourism.

The group also said that Taubman had breached its covenants under the sale and purchase agreement, including a failure to make “essential cuts in operating expenses and capital expenditures and financing those unnecessary expenditures by borrowing hundreds of millions of dollars.

“The COVID19 pandemic constitutes a material adverse effect because it has had a uniquely devastating and disproportionate effect on Taubman compared with other participants in the retail real estate industry,” the complaint alleged.

In an email response to Mingtiandi, Taubman said it still considers Simon “bound to the transaction in all respects,” contending Simon’s attempt to terminate the agreement is “invalid and without merit.” A spokeswoman declined further comment.

Mall Stocks Tumble

Both companies saw their stock values fall Wednesday on the NYSE after the announcement went public. Shares of Simon Property Group stock fell 4 percent to $83.01 per share, while Taubman Center shares tumbled 20.1 percent to $36.17 per share. Simon Property Group, operator of 325 retail properties covering some 22,400,000 square meters (241,000,000 square feet) globally, offered to buy out Taubman at $52.50 a share back when the deal was signed by the real estate investment trusts.

Under the terms of the deal, Simon would acquire an 80 percent stake in Taubman Realty Group, a subsidiary of Taubman Centers, which owns and operates the 26 properties in its portfolio. CEO and chairman Robert S. (Bobby) Taubman and other members of the Taubman family would be selling around one-third of their 29 percent interest in Taubman Realty and would retain a 20 percent stake in the entity following the proposed deal.

Taubman indicated that following the transaction, its existing team would continue to manage the 25 million square feet (2.3 million square metres) of gross leasable area in its mall portfolio under Robert S Taubman’s leadership.

Taubman Centers last year sold a 50 percent stake in the shopping centre assets of its Asian division to US alternative investment giant Blackstone in a deal valued at $480 million. The transaction transferred significant holdings in three fully leased shopping centres – one each in the Chinese cities of Xi’an and Zhengzhou, and a third in the South Korean city of Hanam – from Taubman to Blackstone.