Simon Says $3.6B Deal For Taubman Is Off Due To COVID-19

By Benjamin Horney
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Law360 (June 10, 2020, 1:58 PM EDT) -- Simon Property Group has terminated its $3.6 billion acquisition of fellow mall operator Taubman, saying Wednesday that the coronavirus pandemic constitutes a material adverse effect, and that Taubman failed to take necessary actions to fortify the business in the wake of the COVID-19 outbreak.

In addition to issuing a news release announcing the termination of the transaction, Simon Property Group Inc. sued Taubman Centers Inc. and The Taubman Realty Group Ltd. Partnership in the Sixth Judicial Circuit of Oakland County, Michigan. The suit requests a declaration from the court that Taubman has suffered a material adverse effect, or MAE, and has breached covenants in the merger agreement relating to the operation of its business.

MAEs are a standard feature of merger agreements that, in narrowly defined situations, can provide an out for buyers. Though they are not escape hatches for all mergers and acquisitions gone bad, depending on the circumstances they can be a lever that a buyer can pull if market conditions have changed so drastically that a deal doesn't make sense anymore.

According to Simon, the coronavirus pandemic has had a "uniquely material and disproportionate effect on Taubman compared with other participants in the retail real estate industry." Simon says the merger agreement explicitly states that the company could terminate the deal in the event that a pandemic disproportionately harmed Taubman.

Meanwhile, Simon asserts that Taubman breached its obligations to closing the deal by failing 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."

The deal, inked in February, saw Indiana-based Simon agreeing to buy all of Michigan-headquartered Taubman's common stock for $52.50 per share. The agreement, which was steered by law firms Paul Weiss Rifkind Wharton & Garrison LLP, Latham & Watkins LLP, Wachtell Lipton Rosen & Katz, Honigman, and Kirkland & Ellis LLP, stood to result in Simon becoming an 80% owner of the real estate investment trust's operating subsidiary, Taubman Realty Group.

A representative for Taubman did not immediately respond to a request for comment on Wednesday.

The case is Simon Property Group vs. Taubman Centers Inc., case number 2020-181675-CB, in the Circuit Court for the Sixth Judicial Circuit of Oakland County, Michigan.

--Additional reporting by Elise Hansen. Editing by Adam LoBelia.

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