Nearly two decades ago, the Taubman family ferociously fended off a hostile takeover of their mall company from Simon Property Group. Now the roles are reversed: The Taubmans are gearing up to force Simon to complete the $3.6 billion acquisition it abandoned.
Hours after Simon announced it had scuttled the deal Wednesday, Michigan-based Taubman Centers issued a statement saying it aims to force Simon back to the table to complete the deal — or pay damages.
“Taubman 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,” the company’s statement read. “Taubman intends to hold Simon to its obligations … and to vigorously contest Simon’s purported termination and legal claims.”
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This won’t be the first time the two see each other in court. Simon Property sued Taubman in 2002 after the latter rejected its takeout offer, claiming Taubman breached its fiduciary duty to shareholders and violated Michigan law by failing to get approval from shareholders ahead of a vote to reject the deal.
Taubman prevailed a year later, but only by lobbying Michigan lawmakers to change the state’s takeover laws in a way that favored the family.
This time, Simon Property has hired seasoned mergers-and-acquisitions attorney Lew Clayton of Paul, Weiss, Rifkind, Wharton & Garrison to put the final nail in the deal’s coffin.
Simon filed a lawsuit in Michigan Wednesday asking the state court to rule that Taubman breached the contract by allowing the company to suffer a materially adverse effect from the coronavirus.
Among other claims, Simon accused Taubman of refusing to cut costs as malls shuttered. Taubman failed to cut executive salaries and fire or furlough employees, according to Simon, which said it took both actions for its company.
“Taubman will pay a high price for decisions of company management that ignore the financial effects of the pandemic,” the company wrote in its lawsuit. “Taubman’s failure to take timely action means that its operations, its employees, and its other stakeholders will suffer far more in the future.”
Simon also accused Taubman of relying on “enormous borrowing” by drawing down $350 million on a line of credit in March — an action that Simon acknowledged it had approved.
Another claim is that Taubman’s portfolio of high-end, enclosed malls suffered more and will struggle to recover from the pandemic more than competitors that better diversified their portfolios with open-air shopping centers.
Because the virus spreads more readily indoors, shoppers will feel more comfortable returning to open-air centers, which tend to sell necessary goods like groceries instead of discretionary items that people can buy online, Simon argues.
CEO David Simon distanced his company from the mall label on the REIT’s May earnings call.
“We are not a mall company,” he said. “We are predominantly a retail real estate company, but we’re not — I wouldn’t, by any stretch of the imagination consider us a mall company.”
The case will be watched closely. Analysts at Piper Sandler said they believe Indianapolis-based Simon has the upper hand in the Michigan legal drama.
“While [Taubman] has the home-court advantage . . . [Simon] has the financial resources to sustain an ongoing legal battle while still reopening its portfolio,” analysts wrote in a note. “By contrast, Taubman must now grapple with this litigation and resolve reopenings with tenants, without the fiscal heft [Simon] would have provided in those negotiations.”
Contact Rich Bockmann at rb@therealdeal.com or 908-415-5229