Simon Property Group Terminates $3.6 Billion Taubman Centers Merger Agreement

Indianapolis — Simon Property Group (NYSE: SPG) has terminated its Feb. 9 merger agreement with Taubman Centers Inc. (NYSE: TCO). Simon also filed an action today in Michigan’s Oakland County Circuit Court saying Taubman breached the covenants in the merger agreement.

Under the terms of the agreement, Simon was to acquire an 80 percent interest in Taubman for approximately $3.6 billion.

Indianapolis-based Simon says its termination of the merger agreement is based on two separate grounds. “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 a statement from Simon. “Second, in the wake of the pandemic, Taubman has breached its obligations, which are conditions to closing, relating to the operation of its business.”

Taubman failed to take steps to mitigate the impact of the pandemic as others in the industry have, such as not making essential cuts in operating expenses and capital expenditures, according to Simon.

The merger agreement specifically gave Simon the right to terminate the transaction in the event that a pandemic disproportionately hurt Taubman. Simon says that Taubman’s significant proportion of enclosed retail properties in densely populated metropolitan areas; dependence on both domestic and international tourism at many of its properties; and its focus on high-end shopping have combined to hurt the Bloomfield Hills, Mich.-based company.

The country’s largest mall owner, Simon is a REIT engaged in the ownership of shopping, dining, entertainment and mixed-use destinations across North America, Europe and Asia. Its stock price closed at $86.47 per share Tuesday, June 9, down from $161.39 per share one year ago.

Taubman’s portfolio spans 26 super-regional malls and power centers totaling more than 25 million square feet of gross leasable space in the United States and Asia. Its stock price closed at $45.20 per share on Tuesday, June 9, up from $41.98 per share one year ago. The stock price plummeted overnight to open at $28.50 per share this morning as news of the canceled merger reached investors.

In a release dated June 5, Taubman and its board of directors said it would not declare a second-quarter dividend on its common stock as a result of COVID-19 and “the resulting uncertain economic environment.” The board said it would monitor the company’s financial performance and liquidity position on an ongoing basis and would consider reinstating the common dividend at a later date.

In its first-quarter results, Taubman said its net income and earnings per diluted common share were higher due to the sale of interest in CityOn.Xi’an, a shopping center in Xi’an, China. In February, Taubman sold 50 percent of its interest in CityOn.Xi’an to real estate funds managed by the Blackstone Group Inc. for $91 million. The sale represented the third and final Asian asset in which Blackstone acquired 50 percent interest.

— Kristin Hiller

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