UPDATE: June 26, 2020: Taubman Centers shareholders on Thursday voted to approve its acquisition by rival Simon Property Group, which the latter has sued to terminate. Nearly 100% of votes were cast in favor of the merger, according to a Taubman press release.
Meanwhile the two real estate companies are locked in litigation over the deal. A Michigan judge has ordered the parties into mediation set to complete in July. A trial date is penciled for November should Taubman and Simon be unable to reach an agreement through the mediation process.
"A classic case of buyer's remorse" is how Taubman Centers characterized Simon Property Group's termination of its agreement to buy an 80% ownership interest in Taubman for $3.6 billion. Taubman on Wednesday filed its answer to Simon's move in the Sixth Circuit Court in Oakland County, Michigan, according to court filings emailed to Retail Dive.
Taubman argues that when their deal was reached "the parties and the world were well-aware of the risks of the novel coronavirus pandemic." In fact, the agreement was "to allocate the risk of global pandemics to the Simon Parties, knowing full well that there was a pandemic raging in the world. The Simon Parties accepted this risk," according to court documents.
In an email to Retail Dive, Simon Property Group said it's confident it can call off the deal. "The Merger Agreement explicitly provides that a pandemic that has disproportionately affected Taubman compared to others in the retail real estate industry gives Simon the right to terminate the Agreement, which is precisely what has happened," a Simon spokesperson said. "Notably, nowhere in its extensive legal filing does Taubman seriously contest that it was not disproportionately impacted."
This tit-for-tat is remarkably similar to last month's jousting between private equity firm Sycamore Partners and L Brands, which ended out of court, with Sycamore backing out of buying a controlling interest in Victoria's Secret for about $525 million.
That scuffle led many to wonder whether LVMH might have second thoughts about its own agreement to buy American jeweler Tiffany & Co., and earlier this month the Parisian luxury house acknowledged that it may be taking a second look at the $16.2 billion price tag.
That doesn't mean that deal or the Taubman-Simon merger end up scuttled. Wells Fargo Senior Analyst Tamara Fique, in a note emailed when Simon first moved to nix the deal, said that Simon's characterization of Taubman's vulnerabilities, including its high concentration of enclosed malls in major cities that attract tourists and high-end spending, were "likely the very same factors that attracted Simon to Taubman at the outset."
Still, if Simon can wriggle out, it would mean billions of dollars at a time when money is tight, according to another Wells Fargo analyst, Thierry Perrein, writing the same day. "Now we no longer have to worry about $3.6 billion of liquidity evaporating at a time when preserving cash is of utmost importance," he said, adding "we are a bit relieved now."