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Taubman Accuses Simon of ‘Buyer’s Remorse’, Fights to Save $3.6 Billion Merger

Update 2:08 p.m. ET: In a statement to FN, Simon Property Group said that it “remains confident that its termination of the merger agreement is valid and looks forward to proving its case in court.”

“The merger agreement explicitly provides that a pandemic that has disproportionately affected Taubman compared to others in the retail real estate industry gives Simon the right to terminate the agreement, which is precisely what has happened,” Simon said. “Notably, nowhere in its extensive legal filing does Taubman seriously contest that it was not disproportionately impacted.”

What we reported earlier:

Taubman Centers Inc. is firing back at Simon Property Group Inc. in an attempt to salvage their planned $3.6 billion merger.

In a court filing in Michigan circuit court on June 17, Taubman called Simon’s plan to terminate the agreement “a classic case of buyer’s remorse.”

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“Now, [Simon] apparently no longer like[s] the deal they made, and they have wrongfully purported to terminate their agreement with [Taubman] and refuse to carry out their obligations and close the transactions, depriving [Taubman] of the bargained-for benefits of the transaction,” the filing reads. “Unfortunately for [Simon], the contractual terms that the parties bargained for do not permit [Simon] to renege on their obligation to close the transactions based on their apparent change of heart.

Simon announced in February that it would snap up 80% of Taubman Realty Group Limited Partnership. The company was to purchase Taubman’s stock for $52.50 a share, or a 51% premium on what stocks closed at the previous day, with the Taubman family to retain a 20% ownership in TRG. Taubman owns, manages or leases 26 shopping centers in the U.S. and Asia, while Simon Property has more than 200 malls and outlets in the U.S. that feature roughly 3,000 brands.

On June 10, Simon announced its intention to back out of the February deal — citing the “uniquely material and disproportionate effect” of COVID-19 on Taubman versus others in the retail real estate industry. According to Simon, Taubman was “disproportionately hurt” by the pandemic compared to competitors because of its “significant” amount of enclosed properties located in densely populated cities, focus on high-end shopping and “dependence” on domestic and international tourism.

However, Taubman claims that Simon “repeatedly failed to assert the purportedly incurable, disproportionate material adverse effect of the pandemic on Taubman.” Further, Taubman argues that both parties were “well-aware” of the risks of the coronavirus crisis when they reached a deal this February.

“[Simon] clearly understood that the coronavirus and the deteriorating retail market would severely impact the shopping mall industry when they made their strategic judgment to acquire the Taubman Parties — despite the brewing pandemic — so as to achieve a long-term business objective they had held for many years,” the complaint reads.

Like other mall owners, Simon has itself faced challenges because of the pandemic. In March, the company was forced to temporarily shutter all of its units in March, and a number of its retail tenants announced they would not pay rent during the closure period. To maintain liquidity through the coronavirus crisis, Simon extended its $6 billion revolving credit facility and term loan, implemented executive pay cuts and reportedly furloughed one-third of its workforce.

 

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