Simon Property Group has backed out of its planned $3.6 billion merger agreement with Taubman Centers Inc.
In addition to ending the merger agreement, the largest U.S. mall operator said Wednesday it has requested a state court in Michigan to declare that Taubman suffered a material adverse event and has breached covenants governing the operation of its business.
Simon said COVID-19 has had a material impact on Taubman’s operations, and that the company breached its obligations by failing to mitigate the impact of the pandemic as other real estate investment trusts have done by “not making essential cuts in operating expenses and capital expenditures,” for example.
In early February, the pair agreed Simon would acquire an 80 percent majority stake in Taubman, inking the deal while the coronavirus outbreak had yet affect the U.S. and spark a systemic shutdown of non-essential retail.
Simon made no mention of the Taubman deal when it reported first-quarter results last month, fueling speculating that the planned merger might fall through. Taubman posted first-quarter results last month as well, but declined to host a conference call with analysts, in light of the planned merger.
On Wednesday following receipt of Simon’s notice of termination, Taubman said it believes the “purported termination” is both “invalid and without merit, and that Simon continues to be bound to the transaction in all respects.” Taubman also said it intends to hold Simon to its obligations under the merger agreement and that it has scheduled a special meeting of shareholders for June 25 at 10:00 a.m. at company headquarters in Bloomfield Hills, Mich., where they will be asked to vote in favor of the merger.
The deal landscape has shifted dramatically amid COVID-19 disruption.
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In April, private equity firm Sycamore Partners said it was ending its planned acquisition of a 55 percent stake in Victoria’s Secret for $525 million. L Brands Inc. initially said it would seek to enforce the merger agreement, but the parties last month resolved their differences. L Brands will continue with its plan to split the Victoria’s Secret operation and its Bath & Body Works business into two separate entities, though both remain under the L Brands umbrella.
The move to re-evaluate deals that were in the works before the coronavirus pandemic hit U.S. shores could also have an impact on the planned acquisition of Tiffany & Co. by LVMH, a $16.2 billion deal that was signed in November. LVMH is said to be reviewing the agreement, while Tiffany has gotten the nod from lenders to increase its leverage ratio in order to avoid breaching any covenants tied to its borrowing terms. That might give Tiffany the edge in getting LVMH to uphold the terms of its merger agreement.
Unlike the Taubman deal, which Simon said contains a provision allowing it to bail if an event like the pandemic disproportionately erodes its competitor’s value, sources said there is no similar clause in the LVMH-Tiffany contract.