Simon Property Group Inc., which in February 2020 announced plans to acquire rival mall operator Taubman Centers Inc. for some $3.6 billion, confirmed it has terminated the deal.
The retail giants have properties worldwide, including Plaza Carolina, a Simon property, and The Mall of San Juan, which Taubman opened in 2015. Both shopping centers reopened on June 1, when the government began allowing businesses to resume economic activity after about 10 weeks of lockdown ordered to contain the spread of the COVID-19 virus.
In addition to ending the proposed merger, Simon filed a lawsuit in a Michigan court against Taubman Centers and The Taubman Realty Group Limited Partnership, requesting a declaration “that Taubman has suffered a material adverse event under the merger agreement and has breached the covenants in the merger agreement governing the operation of Taubman’s business.”
As detailed in the complaint, Simon’s termination of the merger agreement is based on two 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. Second, in the wake of the pandemic, Taubman has breached its obligations, which are conditions to closing, relating to the operation of its business,” Simon said in a statement.
“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,” it added.
Separately, Taubman Centers Inc. confirmed that Simon delivered a notice aiming to end the deal, saying it 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,” the company added.
Despite the break-up, Taubman said it is moving forward with a scheduled special meeting of shareholders on June 25, to approve the merger agreement.
Taubman warned it may seek monetary damages, including amounts based on the deal price.
Meanwhile, Simon contends that the agreement gave the right to terminate the transaction in the event that a pandemic disproportionately hurt Taubman.
“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,” Simon said in a release.
“In addition, Taubman has breached its obligation to operate its business in the ordinary course,” it stated.