Mall owner Simon terminates Taubman purchase deal due to pandemic

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The largest US mall owner, Simon Property Group, said on Wednesday morning that he had exercised his contractual rights to terminate his agreement to purchase the owner of the upscale Taubman Centers.Taubman’s shares have reached more than 40% on the news, but have recently fallen about 30%. Simon’s shares were down about 7% for the last time.

A Taubman representative was not immediately available for comment.

The termination of the $ 3.6 billion deal underscores how stressed retail owners were during the coronavirus pandemic. Simon is already suing Gap, his biggest non-anchor tenant, for not paying rent. The mall owner, CBL & Associates, warned earlier this month that its ability to continue operating was in doubt as retailers’ rent payments did not allow it to miss an interest payment.

Simon said in a press release that his merger agreement “specifically gave Simon the right to end the transaction in the event of a pandemic disproportionately harming Taubman”.

“Taubman’s significant proportion of closed retail properties located in major, densely populated metropolitan areas, dependence on domestic and international tourism in many of its properties, and its focus on high-end purchases are combined to have a disproportionate impact on Taubman’s activities due to the COVID-19 pandemic compared to the rest of the commercial real estate industry, “he said.

On February 10, about a month before the coronavirus epidemic was declared pandemic, Simon announced that he had agreed to buy Taubman as part of a deal valued at $ 3.6 billion.

The companies at the time said that Simon would acquire Taubman shares for $ 52.50 per share, a 51% premium compared to when Taubman shares closed on the previous trading day.

But since then, the actions of mall owners, including those of Taubman, have lost value during the pandemic, with many retail stores and malls being temporarily closed in late March. Investors have fled space.

Taubman’s shares closed Tuesday at $ 45.25, well below the transaction price.

Simon explained that his termination is based on two grounds.

The first is that the Covid-19 crisis had “a purely material and disproportionate effect on Taubman compared to other players in the commercial real estate industry”.

Second, Simon argues that Taubman failed to fulfill its obligations, in particular by failing to take action “to mitigate the impact of the pandemic like others in the industry.” Simon said Taubman did not make essential cost reductions.

Simon said he filed a lawsuit Wednesday morning at the Circuit Court in Oakland County, Michigan against Taubman.

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