Simon Property Group Scrubs Taubman Deal on Coronavirus Issues

Simon Property Group is pulling out of its $3.6 billion offer to buy rival Taubman Centers.
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Simon Property Group  (SPG) - Get Report, the biggest U.S. shopping mall operator, said Wednesday it was scrubbing its $3.6 billion offer to acquire Taubman Centers  (TCO) - Get Report, charging its rival had failed to take "essential steps" to lessen the impact of the coronavirus pandemic.

Shares of Indianapolis-based Simon Property were falling 2.9% to $83.96, while the Bloomfield Hills, Michigan-based Taubman shares were tumbling 18.7% to $36.78.

Simon Property listed its reasons for canceling the agreement in a complaint filed in the Sixth Judicial Circuit of Oakland County in Michigan against Taubman Centers, which agreed to be acquired in February after holding intermittent talks with Simon since late last year.

"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," Simon Property said in a 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."

In particular, Simon said, "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."

Simon said that Taubman's "significant proportion of enclosed retail properties located in densely populated major metropolitan areas, dependence on both domestic and international tourism at many of its properties, and its focus on high-end shopping have combined to impact Taubman's business disproportionately due to the COVID-19 pandemic when compared to the rest of the retail real estate industry."

The coronavirus outbreak has taken a heavy toll on the retail industry, as businesses have been forced to close stores to comply with social distancing and shelter-in-place orders.

Simon has 209 properties in the United States and was forced to close all of them in March. 

On May 11, the company said it had reopened 77 of its U.S. retail properties, while 12 of Simon's designer and international premium outlet properties were reopened.

Taubman said in a statement that it "believes that Simon’s purported termination of the merger agreement is invalid and without merit, and that Simon continues to be bound to the transaction in all respects."

In addition, Taubman said "it 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."

Simon Property Group is reportedly suing Gap (GPS) - Get Report for nearly $66 million in unpaid rent accumulated during the peak of the coronavirus pandemic.