Indianapolis’ Simon Property Group Inc. and Bloomfield Hills’ Taubman Centers Inc. announced they have reached a definitive agreement modifying certain terms of the original merger agreement and have settled a legal matter.
Taubman is a developer and owner of luxury shopping malls, including Twelve Oaks Mall in Novi, and Simon is one of the nation’s largest retail center owners. The modification included a changed purchase price of $43 per share in cash and other provisions to reduce closing conditionally.
The modified merger agreement continues to provide that Simon will acquire an 80 percent ownership interest in The Taubman Realty Group Limited Partnership. The Taubman family will sell about one-third of its ownership interest at the transaction price and remain a 20 percent partner in Taubman Realty Group.
The boards of both companies, including the special committee of independent directors of Taubman, have approved the terms of the transaction. The modified merger agreement provides that Taubman will not declare or pay a dividend on its common stock prior to March 1 and then only subject to certain limitations and conditions.
The merger is expected to close in late 2020 or early 2021, subject to Taubman shareholder approval and customary closing conditions. Simon and Taubman have also settled their pending litigation in the Circuit Court for the 6th Judicial District, Oakland County, Michigan.
“Taubman and Simon will continue to operate as usual, and as separate companies, until the transaction closes,” Taubman says in a statement. “After the transaction is completed, Taubman will maintain its corporate office in Bloomfield Hills and the Taubman Asia offices in Hong Kong, China, and Korea, and we expect to operate much as we do today related to the ownership, management, and leasing of our properties and how we serve our tenants, shoppers, and communities.”
The companies announced Simon planned to acquire an 80 percent ownership in Taubman in early February. Locally, in addition to Twelve Oaks Mall, Taubman owns Great Lakes Crossing Outlets in Auburn Hills. Simon properties include Birch Run Premium Outlets in Birch Run and Briarwood Mall in Ann Arbor.
Originally, Simon agreed to acquire all of Taubman common stock for $52.50 per share in cash, and the Taubman family planned to sell about one-third of its ownership interest at the transaction price while remaining a 20 percent partner in Taubman.
On June 10, Simon announced it exercised its contractual rights in an attempt to terminate its planned merger agreement with Taubman. On the same day, it also filed an action in the Circuit Court for the 6th Judicial Circuit Court of Oakland County against Taubman Centers and The Taubman Realty Group Limited Partnership requesting a declaration that Taubman suffered a Material Adverse Event under the agreement and breached the covenants in the merger agreement governing the operation of Taubman’s business.
Taubman said it believed Simon’s purported termination of the merger agreement was invalid and without merit and that Simon continued to be bound to the transaction.
In late June, the legal battle continued, but a majority of Taubman’s shareholders approved and adopted the merger. The meeting was scheduled before the legal dispute was filed. About 99.7 percent of the shares voted were in favor of the merger agreement, which constitutes about 84.7 percent of the outstanding shares entitled to vote. Shares voting in favor also included about 78.3 percent of the outstanding shares entitled to vote held by shareholders other than the members of the Taubman family.
Simon tried to terminate the merger agreement based on two separate grounds: First, the COVID-19 pandemic had a uniquely material and disproportionate effect on Taubman compared with other participants in the retail real estate industry.
Second, in the wake of the pandemic, Simon alleged Taubman breached its obligations, which are conditions to closing, relating to the operation of its business. In particular, it said it failed to take steps to mitigate the impact of the pandemic as others in the industry had, including by not making essential cuts in operating expenses and capital expenditures, according to Simon.