06/10/2020 | by Sarah Borchersen-Keto

Simon Property Group, Inc. (NYSE: SPG) said it has terminated its merger agreement with Taubman Centers, Inc. (NYSE: TCO) on the grounds that the pandemic has disproportionately hurt Taubman’s operations.

The proposed merger was first announced in February, when Simon said it had agreed to take a controlling stake in fellow retail real estate REIT Taubman Centers in a cash deal valued at approximately $3.6 billion.

In a statement June 10, Simon said it has filed an action in the Circuit Court for the 6th Judicial Circuit of Oakland County, Michigan against Taubman Centers and The Taubman Realty Group LP requesting a declaration that Taubman has suffered a material adverse event under the merger agreement and has breached the covenants in the agreement governing the operation of its business.

According to Simon’s complaint, the COVID-19 pandemic has had a "uniquely devastating and disproportionate effect on Taubman compared with other participants in the retail real estate industry." In addition, Simon claims that Taubman has failed to take steps to mitigate the impact of the pandemic as others in the industry have done, including by failing to make essential cuts in operating expenses and capital expenditures.

Taubman, meanwhile, described the planned merger termination as “invalid and without merit,” and said 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.

Floris van Dijkum, analyst at Compass Point Research & Trading, LLC, said he expected Taubman’s board to re-engage with Simon, “as the alternative is a messy legal dispute and further downside to Taubman’s share price.” He noted that a $40 to $42 transaction price would be a “winner” for both companies, which compares to the $52.50 price that Simon offered in February.