Shoppers ascend and descend escalators at the King of Prussia Mall, owned by Simon Property Group, United State’s largest retail shopping space, in King of Prussia, Pennsylvania.
Mark Makela | Reuters
The biggest U.S. mall owner Simon Property Group said Wednesday morning it has exercised its contractual rights to terminate its deal to acquire the high-end mall owner Taubman Centers.
Taubman shares tanked more than 40% on the news, but were recently down about 30%. Simon shares were last down about 7%.
A representative from Taubman was not immediately available to comment.
The termination of the $3.6 billion deal highlights just how much stress retail landlords have come under during the coronavirus pandemic. Simon is already in the midst of suing Gap, its biggest non-anchor tenant, for not paying rent. Mall owner CBL & Associates earlier this month warned that its ability to continue as a going concern is in doubt, as skipped rent payments by retailers forced it to miss an interest payment.
Simon said in a press release that its merger agreement “specifically gave Simon the right to terminate the transaction in the event that a pandemic disproportionately hurt Taubman.”
“Taubman’s significant proportion of enclosed retail properties located in densely populated major metropolitan areas, dependence on both domestic and international tourism at many of its properties, and its focus on high-end shopping have combined to impact Taubman’s business disproportionately due to the COVID-19 pandemic when compared to the rest of the retail real estate industry,” it said.
On Feb. 10, about a month before the coronavirus outbreak was declared a pandemic, Simon had announced it agreed to buy Taubman in a deal valued at $3.6 billion.
The companies, at the time, said Simon would acquire Taubman’s stock for $52.50 a share, or a 51% premium to where Taubman shares had closed the previous trading day.
But since then, mall owners’ shares, including Taubman’s, have lost significant value during the pandemic, as many retail stores and shopping centers were temporarily forced shut in late March. Investors have fled the space.
Taubman shares had closed Tuesday at $45.25, well below the deal price.
Simon explained that its termination is based on two grounds.
One is that the Covid-19 crisis has had a “uniquely material and disproportionate effect on Taubman compared with other participants in the retail real estate industry.”
Second, Simon argues that Taubman has breached its obligations, specifically by not taking steps “to mitigate the impact of the pandemic as others in the industry have.” Simon said Taubman has not made essential cost cuts.
Simon said it filed a suit Wednesday morning in the Circuit Court of Oakland County, Michigan, against Taubman.