Simon Property Group has had second thoughts on its $3.6 billion on its deal to buy mall competitor Taubman Centers Inc.
Simon said it had “exercised its contractual rights to terminate” the deal.
To help make that stick, the company also filed suit in Michigan requesting a declaration that “Taubman has suffered a Material Adverse Event under the merger agreement and has breached the covenants in the merger agreement governing the operation of Taubman’s business.”
Simon based its move on two grounds:
“First, the COVID-19 pandemic has had a uniquely material and disproportionate effect on Taubman compared with other participants in the retail real estate industry,” Simon said. “Second, in the wake of the pandemic, Taubman has breached its obligations, which are conditions to closing, relating to the operation of its business. In particular, 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.”
Additionally, Simon said, under the terms of the deal, it specifically has “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,” Simon said.
Other deals have also been canceled in light of the COVID-19 disruption, including Sycamore Partners, which sued to get out of its deal to buy control of Victoria’s Secret and got its wish when the retailer’s parent company, L Brands Inc., walked away. LVMH Moët Hennessy Louis Vuitton has also had second thoughts about its $16.2 billion agreement to buy Tiffany & Co., although that deal is still pending.