We’ve all read a story or seen a movie about a long-thwarted relationship — star-crossed lovers parted by war, parental interference, a misunderstanding or some other obstacle (car accidents, mentally ill first wives in the attic). At the end, after years or decades apart, they (sometimes by accident, sometimes by design) find each other again and live happily ever after.
This is not that story, at least so far.
This is a story of arch-rival retail real estate firms, run by the second generation of their founding families, that just can’t get together. This is the story of the latest failed merger attempt between Simon Property Group and Taubman Centers.
In June, Simon ended its February merger agreement with Taubman. Simon was to have acquired 80% of Taubman common shares for $52.50 per share (about $3.6 billion). In the termination announcement, Simon cited COVID-19’s “uniquely material and disproportionate effect on Taubman compared with other participants in the retail real estate industry.”
Simon, founded in in 1959 in Indianapolis, Indiana as Melvin Simon & Associates by brothers Melvin, Herb and (later) Fred Simon, went public in 1993. Now run by Melvin’s son David, it became the largest mall owner in the U.S. through its acquisition of DeBartolo Realty.
Founded by A. Alfred Taubman in 1950 and now run by his sons Robert and William, Bloomfield Hills, Michigan-based Taubman went public in 1993 and pretty much stuck to its luxurious knitting. Taubman’s 26 centers around the U.S. and Asia are nearly all enclosed and tend to be upscale (boasting sales of $955 per square foot). They are dominated by apparel tenants, while other owners were adding entertainment and “experiences.” Most are located in major metropolitan areas (such as Beverly Center in Los Angeles and Mall at Millenia in Orlando) that have a disproportionate share of tourist traffic. This would make them even more vulnerable during a pandemic.
In addition, Simon charges, “Taubman has failed to take steps to mitigate the impact of the pandemic as others in the industry have, including by not making essential cuts in operating expenses and capital expenditures.”
This isn’t the first merger attempt between the companies, but last time, Taubman fought it tooth and nail. In 2002, Simon and Westfield (now Unibail-Rodamco-Westfield) made a hostile bid for Taubman, giving up the next year when Taubman lobbied Michigan’s governor to sign a bill that essentially blocked such takeovers. This time, however, Taubman wants the deal — not surprising given that as I write this, Taubman’s stock is around $21 per share, a major discount from $52.50.
“Taubman believes that Simon’s purported termination of the Merger Agreement is invalid and without merit, and that Simon continues to be bound to the transaction in all respects. 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 in a response. “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.”
This has also happened on the retail side. In 1988, Macy’s tried to acquire Federated Department Stores but was outbid by Canadian leveraged buyout mogul Robert Campeau. But cash flow couldn’t support the interest payments on the debt, and Federated filed for Chapter 11 bankruptcy in January 1990. It emerged two years later, in February 1992, just days after Macy’s filed for bankruptcy protection itself, unable to support the debt from its 1986 LBO. Two years later, Federated acquired Macy’s, eventually taking on the Macy name. (Whether they’ve lived happily ever after is another question.)
So maybe these two crazy kids from Indiana and Michigan can figure it out. Jane Eyre did marry Rochester. And Cary Grant found Deborah Kerr again in “An Affair to Remember.”
It’s quite likely that all of this is a ploy to renegotiate the price given the challenges — including COVID-19, consumers made even more comfortable with e-commerce and a possible shift toward less materialism — that will continue to face retail real estate.
Or will Simon and Taubman be Casablanca’s Rick and Ilsa, parting forever?
I can’t wait for the end credits.
Debra Hazel
Debra Hazel Communications
Arverne, NY 11692
debra@debrahazelcommunications.com
201-618-5247
