COVID-19 is a deal-breaker for Simon/Taubman merger
Simon Property Group has called off a deal to acquire Taubman Centers.
The largest mall operator in the U.S. said it was necessary to take this action because the outbreak of the novel coronavirus “had a uniquely material and disproportionate effect on Taubman compared with other participants in the retail real estate industry.”
Simon said the deal announced in February was also no longer valid because Taubman, an operator of upscale malls, had “failed to take steps to mitigate the impact of the pandemic as others in the industry have, including by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.”
Taubman rejected Simon’s legal assertion and called it “invalid and without merit” and stated that it “intends to enforce its contractual rights” laid out in the merger agreement, including seeking monetary damages based on the deal price.
In March, Taubman announced steps it was taking to mitigate the financial hit from closing its properties. At the time, the firm said it was deferring up to $110 million in planned capital expenditures. Management said it expected to reduce operating expenses by about $10 million for the year.
Simon moved aggressively to cut expenses in response to the virus outbreak. It suspended or eliminated around $1 billion in redevelopment and new development expenses, furloughed corporate and field staff, while cutting staff salaries of workers not put on furlough. The mall operator began reopening some of its facilities in early May as states began lifting restrictions.
The Simon/Taubman merger is not the only retail-related deal that has fallen victim to COVID-19. A $525 million deal announced in February that would have given the private equity firm Sycamore Partners a controlling interest in Victoria’s Secret was called off after the lingerie retailer was forced to close stores across the country.
Earlier this week, CNBC reported that Coresight Research is predicting that between 20,000 and 25,000 U.S. stores will go out of business before the end of the year. Between 55 and 60 percent of those are located in malls.
- Simon Property Group Terminates Taubman Agreement – Simon Property Group, Inc.
- Taubman Centers Confirms Receipt of Notice from Simon Property Group Purporting to Terminate Merger Agreement – Taubman Centers, Inc.
- Taubman Centers, Inc. Issues First Quarter Results – Taubman Centers, Inc.
- Simon Property Group Reports First Quarter 2020 Results and Provides Business Update – Simon Property Group, Inc.
- Will shoppers go to the mall because Simon says it’s okay? – RetailWire
- 25,000 stores are predicted to close in 2020, as the coronavirus pandemic accelerates industry upheaval – CNBC
DISCUSSION QUESTIONS: What do you see as the business prospects for malls over the next several years? What will it take to reinvent and reinvigorate these shopping centers?