Two of America’s largest mall owners are set to merge in a $3.6 billion deal as Simon Property Group moves to become the biggest retail landlord left standing with a takeover of competing NYSE-listed REIT Taubman Centers.
Simon Property Group has offered to buy out Taubman at $52.50 a share, according to a joint announcement on Monday by the real estate investment trusts, with the all cash proposal representing a 51 percent premium over the target firm’s closing price on 7 February.
Taubman Centers’ board, which is controlled by the same Taubman family which founded the retail developer in 1950, has agreed to the deal, which still requires approval by shareholders in the two trusts.
The proposed deal comes just one day after bankrupt retailer Forever 21 agreed to a takeover bid by a Simon-led consortium, as the company, which own 233 properties globally, continues to bolster its position among retail real estate’s narrowing field.
In Asia, the Simon-Taubman merger would bring together Taubman’s assets in mainland China and Korea with Simon’s Japan-centric portfolio.
Taubman Family Selling 70-Year-Old Empire
“By joining together, we will enhance the ability of TRG to invest in innovative retail environments that create exciting shopping and entertainment experiences for consumers, immersive opportunities for retailers, and substantial new job prospects for local communities,” David Simon, chairman, CEO and president of Simon Group said, adding that the acquisition would be immediately accretive to the REIT’s returns.
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. The deal comes after the price of Taubman Centers shares had declined from $64.61 in August 2018 to $26.42 at the beginning of this year, before rumours of a deal with Simon had boosted investor hopes in recent weeks.
CEO and chairman Robert S. (Bobby) Taubman and other members of the Taubman family will be selling around one-third of their 29 percent interest in Taubman Realty and will retain a 20 percent stake in the entity following the proposed deal.
“The Taubman Board of Directors has always been focused on maximizing shareholder value. With this transaction, we will deliver a significant, immediate cash premium to shareholders,” Myron Ullman, a Taubman board director who led a committee which is recommending the proposed deal to shareholders said in a statement.
The transaction, which is expected to close in mid-2020, is subject to customary closing conditions, with Taubman indicating that following the deal, its existing team will 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.
“Since Taubman Centers’ founding 70 years ago, we have built a portfolio of high-quality assets and continuously adapted to the evolving retail landscape,” Taubman said. “I am proud of all that this company’s talented employees have achieved and am thrilled to have the opportunity to join together with Simon through this joint venture.”
Taubman Follows Through on Blackstone Partnership
The proposed deal was announced just one day after Taubman announced its fourth quarter results, which included updates on its sale stakes in its Asia assets to Blackstone under a deal set up just under a year ago.
Taubman revealed in the report that it had gained net proceeds of $47.5 million from the $89 million sale of half of its stake in the CityOn mall in Zhengzhou to a Blackstone-managed fund, with Taubman retaining a 24.5 percent interest in the asset.
In the same document, the company noted that it expects to complete the sale of 50 percent of its share in the CityOn Xi’an mall to Blackstone in the first quarter of 2020 at a price of $91 million.
These updates come five months after Taubman announced it had completed the $300 million sale of 50 percent of its interest in a mall in South Korea to Blackstone.
Simon had launched its own shopping centre joint venture in China in 2005, but abandoned that initiative four years later when it sold its interest in the project to its partners for $29 million.
Simon Grows Asia Footprint
Besides its newly regained China presence, Simon has 16 retail assets in Asia, including nine outlet centres in Japan which it operates through a joint venture with Tokyo-based property giant Mitsubishi Estate.
In South Korea, the US group owns a 50 percent non-controlling ownership interest in a joint venture with Seoul-based department store operator Shinsegae that owns four shopping centres, and Simon has another two shopping malls in Malaysia and one in Thailand.