The coronavirus may take a new victim: the $3.6-billion acquisition deal involving Bloomfield Hills-based mall owner and developer Taubman Centers.
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Simon Property Group, the largest U.S. mall operator, announced Wednesday that it was terminating its purchase agreement with Taubman Centers. This includes Taubman’s remaining Michigan malls, Great Lakes Crossing Outlets and Twelve Oaks Mall in Novi.
The agreement dates to Feb. 9, weeks before the coronavirus pandemic brought the closure of malls, retail stores and shopping centers across the country. The deal, which would end Taubman family control of the company, has yet to close.
Simon stated that the pandemic placed a tremendous financial strain upon Taubman and that it was causing a lot of financial problems. “extreme actions”It may be necessary “rescue”The company.
In response, Taubman said it will fight Simon’s attempt to terminate the sale and insisted that Simon remains legally bound to finish the deal. Taubman claimed that it called a special June 25 meeting for its shareholders to approve this deal.
“Taubman intends to hold Simon to its obligations under the (deal) and the agreed transaction, and to vigorously contest Simon’s purported termination and legal claims,”The company stated this in a news release.
Simon announced it is terminating the deal for two chief reasons.
“First, the COVID-19 pandemic has had a uniquely material and disproportionate effect on Taubman compared with other participants in the retail real estate industry,”According to the statement.
“Second, in the wake of the pandemic, Taubman has breached its obligations, which are conditions to closing, relating to the operation of its business,” the statement said. “In particular, Taubman has failed to take steps to mitigate the impact of the pandemic as others in the industry have, including by not making essential cuts in operating expenses and capital expenditures.”
More:Twelve Oaks, Great Lakes Crossing malls bought in $3.6B deal
More:Michigan malls start to set reopening dates: Where you’ll be able to shop
Simon said the agreement specifically gave it a right to back out if a pandemic disproportionately hurt Taubman’s business. Simon said that this happened because Taubman owns many enclosed malls located in major metropolitan areas and some of these depend on domestic or international tourism.
Taubman’s malls are also geared towards high-end shopping which has been hard hit during the pandemic.
In the legal realm, Taubman may have the upper hand in its fight to preserve the deal.
“Taubman has a good chance of winning in court if it decides to fight instead of giving Simon what it might really be after — a lower price,” said professor Erik Gordon of the University of Michigan’s Ross School of Business. “Companies usually lose claims that they can back out of a deal because of a material adverse change that affected the target company differently than it affected other similar companies.”
Court filings reveal details
Simon took legal action Wednesday in Oakland County Circuit Court that seeks a declaration that Taubman suffered a “material adverse event”breached covenants in the agreement.
Under the deal, the Taubman family was to sell one-third of their stake and continue to own 20% of Taubman Realty Group LP; Taubman Chairman and CEO Robert S. Taubman, the founder’s son, was to keep his management posts.
In the Oakland County court filings, Simon claims that many financial analysts expect indoor malls like Taubman’s to be the last places that consumers will want to shop after the pandemic.
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Simon says the wealthier shoppers courted by Taubman malls will be more likely to shop online and not inside stores because of virus fears, and that change will hurt the malls and their ability to charge premium rents.
Simon’s legal filings also claim that Taubman is facing “severe financial problems” and is too short on cash to successfully repurpose mall space that could empty as more retailers struggle to survive after the pandemic, which has already led to bankruptcies by Neiman Marcus, JC Penney and J. Crew.
The filings claim Taubman failed to significantly cut expenses, do layoffs or cut executive salaries when the pandemic hit, and therefore “has been financially devastated.”
The publicly available version of Simon’s filing redacts what appear to be recent Taubman financial results, which Simon says are “far worse than the experience of (Taubman’s) competitors.”
Taubman drew down $350 million on its primary $1.1 billion credit line at the end of March, nearly the entire amount available,According to the filing.
“As a result of Taubman’s failure to operate in the ordinary course, even more extreme actions will be necessary in the future in an attempt to rescue its business,” the filing says. “Far from preserving jobs or helping its employees, Taubman’s actions will ultimately jeopardize more jobs, harm its employees, and damage the company, even as Taubman’s executives maintain their lucrative compensation.”
Simon was once defeated in battle by Taubman
Ironically, Taubman Centers once waged war to stop Simon Property Group from buying it in 2003. The Taubman family informed Simon that their company was for sale. “not for sale.”
The hostile takeover attempt of $1.7 billion was stopped by the former Gov. Jennifer Granholm signed changes to Michigan’s anti-takeover law — the Michigan Control Share Acquisitions Act — that allowed the Taubman family to block the all-cash offer by Simon and a partner, Westfield America Inc. The legislation was known in Lansing as the “Taubman Bill.”
The takeover attempt played out while company founder A. Alfred Taubman, who was also chairman of the Sotheby’s art auction house, served a 9½-month prison sentence for having conspired with his counterpart at Christie’s to fix prices in the art auction market.
The elder Taubman, also known for generous philanthropy, died in 2015 at age 91.
26 malls in portfolio
Taubman Centers is the owner or manager of 26 malls or large shopping centres in the U.S.A and Asia. It previously owned The Mall at Partridge Creek in Clinton Township and Fairlane Town Center in Dearborn, but sold them in 2014 along with several other malls in other states to Starwood Capital Group. It had developed and sold Lakeside Mall, Sterling Heights, years before.
Simon Property Group owns a larger portfolio that includes more than 200 shopping centers and malls, including Birch Run Premium Outlets in Ann Arbor and Briarwood Mall.
Under the now-endangered deal, Simon agreed to acquire Taubman’s stock for $52.50 a share, or a 51% premium to what Taubman shares closed at the previous trading day and a 98% premium to what the shares closed at on Jan. 31, the last trading day before market rumors about the deal, according to Simon’s legal filing.
Taubman stock ended Wednesday at $36.17, down 20%
ContactJC Reindl: 313-222-66631 [email protected]. Follow him on twitter @jcreindl. Learn more about business and sign up to our newsletter business newsletter.
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