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June 11, 2020

$3.6B acquisition of Westfarms, other malls, falls apart

Photo | Contributed Westfarms mall in Farmington.

America's largest mall operator has backed out of a proposed $3.6-billion deal to acquire 26 malls, including Westfarms in Farmington, due to COVID-19-related headaches.

Simon Property Group Inc. on Wednesday announced it terminated its Feb. 9 merger agreement with high-end mall owner Taubman Centers Inc. due to its failure to mitigate the impact of the COVID-19 pandemic on the business. 

In particular, Simon claims Taubman breached the deal by not making essential cuts to operating expenses and capital expenditures like others in the retail real estate industry. Simon said the merger agreement gave it the right to terminate the deal in the event that a pandemic “disproportionately hurt Taubman.”

On Wednesday, Simon asked a Michigan court, where Taubman is headquartered, to declare that the deal has been "validly terminated."

“Taubman apparently believes that it can avoid any sense of fiscal prudence, severely deplete its cash reserves, and imprudently incur enormous debt — so that it can continue to generously reward its executives, employees, and investors, and make enormous expenditures — because it hopes to force Simon to pick up the pieces of what is left of Taubman after their deal closes,” Simon said in court papers Wednesday.

Taubman later Wednesday in a statement said it received the termination notice from Simon, adding that it believes the decision is "invalid and without merit, and that Simon continues to be bound to the transaction in all respects." 

The company said it plans to hold Simon to its obligations, and that shareholders are still scheduled to approve the merger agreement as planned on June 25, at its headquarters in Bloomfield Hills, Mich.

"Taubman intends to hold Simon to its obligations under the merger agreement and the agreed transaction, and to vigorously contest Simon’s purported termination and legal claims," the company said. "Taubman intends to pursue its remedies to enforce its contractual rights under the merger agreement, including, among other things, the right to specific performance and the right to monetary damages, including damages based on the deal price."

A month before the coronavirus outbreak was declared a health pandemic, Simon in February announced it agreed to buy rival mall operator Taubman in a deal valued at $3.6 billion.

The deal was previously set to pay Taubman shareholders a 51% premium over the most recent closing price. The Taubman family, which controls 29% of the company, was also expected to continue holding 20% of Taubman Centers after the deal, with Simon buying the other 80%.

But the health crisis has hit retail landlords particularly hard as malls in many states were closed for numerous weeks and months nationwide. Connecticut malls were allowed to reopen on May 20 during the first easing of the COVID-19 restrictions.

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