This Is Why Simon Property Group Is Backing Out of Its Plan to Buy Fellow Mall Owner Taubman

Update, 2:05 p.m.: In a release, Taubman said that it has received a notice from Simon notifying it of the mall owner’s intend to terminate the merger agreement. Taubman said it believes Simon’s attempt to back out of the plan is “invalid and without merit, and that Simon continues to be bound to the transaction in all respects.”

“Taubman intends to hold Simon to its obligations under the merger agreement and the agreed transaction, and to vigorously contest Simon’s purported termination and legal claims,” Taubamn said in a release. The company added that its special meeting of shareholders, wherein Taubman shareholders will be asked to approve the agreement, remains scheduled for June 25.

What we reported earlier:

The United States’ largest mall owner is backing out of a deal to buy its smaller rival.

Simon Property Group Inc. said it will terminate its February 2020 agreement to acquire Taubman Centers Inc.

According to Simon, it is exiting the deal because of the “uniquely material and disproportionate effect” of COVID-19 on Taubman versus others in the retail real estate industry. 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, Simon claims.

In addition, the mall giant says Taubman “failed to take steps” — such as making cuts in operating expenses and capital expenditures — to mitigate the impact of the coronavirus crisis. Simon added that it has filed a lawsuit against Taubman in Michigan circuit court.

In February, Simon announced that it would snap up 80% of Taubman Realty Group Limited Partnership. The company was to buy 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% partnership 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.

Simon has faced challenges of its own amid the pandemic. The company was forced to temporarily shutter all of its units in March. To maintain liquidity, Simon extended its $6 billion revolving credit facility and term loan.

The company additionally implemented executive pay cuts and reportedly furloughed nearly one-third of its workforce. What’s more, a number of the mall owner’s tenants have said they would not pay rent during the store closure period. Simon earlier this month filed a lawsuit against one of its biggest tenants, Gap Inc., after the apparel and accessories retailer allegedly skipped out in nearly $66 million in rent payments.

As of 11:45 a.m. ET, Taubman’s stock had fallen over 21%, to $35.60, after news of the broken deal. Simon shares also were down in Wednesday morning trading, sliding by 5.1% to $82.11.

A spokesperson for Taubman did not immediately respond to FN’s request for comment.

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