In a reversal of its attempt to nix its deal to acquire smaller rival Taubman, Simon Property Group is set to take over some of the most productive mall properties in the U.S., widely seen as key to thriving in a new retail environment.
The two firms on Sunday said the merger is back on after renegotiating Simon's purchase price down 18% to $43 per share, from the original $52.50 per share agreed to in February. The new deal reportedly saves Simon nearly $800 million from the original deal, which was valued at $3.6 billion at the time.
The new merger agreement, which has been approved by both boards but awaits Taubman shareholder approval, settles their legal battle, according to a joint press release. The mall developers said they expect to close the deal sometime this year or early next.
This new deal will surprise few people, as Simon probably needs to take over its smaller rival.
Simon's move in June to nix the merger deal landed it in court, but all along that was widely seen as a bargaining tactic to lower the price, rather than to actually abandon it. Simon CEO David Simon himself last week reiterated his belief in well-located malls, despite how the pandemic has accelerated the decline of the retail model.
"And you got to own quality," he told analysts during the company's third-quarter conference call, per a Motley Fool transcript. "[T]oday, it's somewhat irrelevant whether it's this kind of asset or that. It's really: Does it have critical mass. Is it well located? Does it serve the customer the way they want to be served?"
Taubman's portfolio has the highest productivity of publicly-traded mall developers, according to a Wells Fargo client note Monday. While Simon got a hefty discount on its original offer, the new purchase price is still 24% higher than the value of Taubman's shares days before the deal was first announced in February and 9% higher than its most recent closing price, Wells Fargo Senior Analyst Tamara Fique said in emailed comments.
As in the original deal, the modified merger agreement is for Simon to acquire an 80% ownership interest in Taubman Realty Group Limited Partnership, with the Taubman family remaining a 20% partner.
While even some higher quality malls are faltering as more of their anchors depart in favor of other locations, Simon's control of "a subset of the highest quality properties in the US is a strategic advantage long-term," according to a note from Jeffries analysts on Sunday. But some recent activity at Simon shows that even the largest U.S. mall operator is having its struggles.
Simon in recent weeks has revealed plans to "stipulate receivership and friendly foreclosure" for the Mall at Tuttle Crossing in Ohio and Southridge Mall in Wisconsin, cease further capital spending on its Montgomery Mall in Pennsylvania, and hand over its title interest in Crystal Mall in Connecticut to the lender, according to a special report from KBRA Credit Profile.
"[D]espite its size, operational expertise, and deep brand relationships, [Simon Property Group] is not immune to the adverse effects of the coronavirus (COVID-19) pandemic," KBRA said in a press release.