Simon Property Group to buy Taubman Centers Inc.

A shopping center Goliath is acquiring its smaller rival.

The largest Real Estate Investment Trust in the U.S., Simon Property Group, today said it has entered into a definitive agreement to acquire 80 percent of Taubman Realty Group Limited Partnership for $3.6 billion in cash.

According to the terms of agreement, Simon through its operating partnership, Simon Property Group L.P. will acquire all Taubman common stock for $52.50 a share in cash and the Taubman family will sell about one-third of its ownership interest at the transaction price and remain a 20 percent partner, with the purchase price representing a 6.2 percent underwritten capitalization rate.

It’s a stunning turn or events in light of the fact that Taubman has rebuffed the hostile advances of Simon in the past. Simon Properties tried to purchase Taubman Centers Inc., in November 2002 for $17.50 a share in a hostile takeover. The following month, Taubman’s board of directors unanimously rejected Simon’s sweetened offer of $18 a share, or $1.5 billion. Simon has also launched an unwanted takeover of another REIT, Macerich Co., which was also declined.

Both Simon and Taubman have exposure in Asia, but Taubman, which was early to establish a presence there, completed for $89 million the sale of its 50 percent interest in CityOn.Zhengzhou in Zhengzhou, China, to the Blackstone Group, retaining a 24.5 percent ownership interest in the center, and expects in the first quarter to complete  the sale of its 50 percent interest in CityOn.Xi’an, in Xi’an for $91 million.

News of the latest potential deal emerged last week during Simon Properties’ fourth-quarter earnings conference call when chairman and chief executive officer David Simon was asked a question by a Wall Street analyst.

“Hey, David, earlier in the call you talked about buying real estate, and that bricks-and-mortar obviously still has a great future. You said you’re not going to deviate from that, and when buying makes sense, you would do it,” said Citigroup senior REIT analyst Michael Bilerman, paraphrasing a comment made by the ceo. “There was a headline that came across on Bloomberg during the call that you potentially had merger talks with Taubman and that [the talks] eventually broke off given the market volatility.”

Taubman and Simon have been reeling from massive changes in consumer shopping behavior that have prompted the bankruptcies of thousands of retailers since the 2007 recession, the rise of online shopping and generational preferences of Gen Z. While mall owners and operators hoped the situation would change, it’s become apparent that this is the new order and consumers aren’t going back to their old ways.

The market sees an opportunity for growth at a time when the shopping center and retail industries are both deeply challenged. The two companies have opposite styles, although their centers overlap in some areas. Taubman has more uniformly upscale properties, while Simon operates malls, Mills and Premium Outlets and has owned or had interest in 233 locations in North America, Asia and Europe. Simon Properties has the muscle and financial wherewithal to invest in shopping centers, and has been diversifying its portfolio with partnerships, such as a recently revealed hookup for coworking space. Taubman has the fashion imprint.

Simon Property’s net income fell 13 percent from a year earlier to $2.1 billion in 2019, according to its fourth-quarter report Tuesday. Revenue rose 3.5 percent to $5.8 billion in the same time period.

Taubman Centers, based in Bloomfield Hills, Mich., operates 26 regional and outlet shopping centers in the U.S. and Asia. The company on Feb. 12 is scheduled to report earnings.

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