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Simon Property’s $3.6 Billion Taubman Dispute Could Be Resolved Next Month

The dispute between Simon Property Group and Taubman Centers Inc. is headed to mediation.

Simon has been trying to wriggle out of planned $3.6 billion merger in which it would take a majority stake in its smaller mall competitor.

The two were ordered to head to mediation, which must be completed by the end of July, per an order by the judge overseeing the lawsuit filed by Simon. He also told the parties to begin preparations for a trial that could be held by the middle of November in case mediation is unsuccessful in settling their dispute.

Simon and Taubman inked their deal back in February, one that envisioned the Taubman family retaining a 20 percent stake in the real estate investment trust. That was before shopping malls and nonessential retailers began temporarily shutting down in the wake of state and local government mandates to shelter-in-place to curb the spread of the coronavirus outbreak in the U.S. in mid-March.

Earlier this month, Simon backed out of the deal, and asked a state court in Michigan to declare that Taubman suffered a material adverse event and has breached covenants in the merger agreement governing the operation of its business. Specifically, Simon charged that Taubman failed to take certain actions to mitigate the impact of COVID-19.

And Simon said the agreement contains a provision allowing it to back out if an event–say, a pandemic–disproportionately erodes its competitor’s value. The initial deal pegged the value of Taubman stock at $52.50 per share in the all-cash deal. Shares of Taubman closed at $45.20 on June 9, the day before Simon said it would end the transaction, and proceeded to fall 20 percent a day later to close at $36.17 after investors learned of Simon’s plan. Since then, shares of Taubman have been trading in the range of $38.

Taubman in turn said that the termination of the deal was invalid, and it plans to hold Simon to the terms of the merger agreement. Taubman even went ahead and slated a special shareholder meeting to vote on the deal, which resulted in a vote in favor of the merger.

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“The shareholder approval satisfies the final condition precedent” to the closing of the transaction, Taubman said, noting that it “stands ready, willing and able to close” on June 30, the date the parties had agreed to in their initial agreement. Taubman also said it has filed an answer and counterclaim to Simon’s action, rejecting Simon’s allegations and seeking specific performance under the terms of the merger agreement.

While it might be easy to think that Simon could be angling to re-negotiate the purchase price, the retail sector has undeniably been hard hit by COVID-19. And if Simon should win, Taubman wouldn’t be the only bride to find itself left at the altar due to COVID-19 disruption. Private equity firm Sycamore Partners in April also elected to walk from a planned deal with L Brands Inc. to acquire a 55 percent stake in Victoria’s Secret for $525 million. Lawsuits were filed in that matter, too, although the parties later resolved their differences without either one having to pay the other any kind of termination fee.