Simon Property Group (NYSE:SPG) will no longer pursue its $3.6 billion acquisition of fellow mall operator Taubman Centers (NYSE:TCO). It said the coronavirus pandemic had too great of an impact on Taubman, and that Taubman failed to take the necessary steps to protect its business during the crisis.
Malls getting mauled
The acquisition was announced in February and Simon had said the deal would be at least 3% immediately accretive to its funds from operations per share on an annualized basis.
Taubman operates several malls in Asia, which were impacted by the COVID-19 outbreak before it was declared a pandemic. Like Simon, which operates top-tier Class A malls, Taubman's super-regional malls are also seen as upscale venues.
However, the spread of the coronavirus in the United States led to all retail outlets being shut down. Although Taubman warned tenants they were still required to pay their rent, many went on a rent strike. Simon has been forced to sue Gap for failing to pay its rent.
In announcing the merger termination, Simon said it asked the courts to say Taubman suffered a "material adverse event" that caused it to breach its covenants in the agreement. It says the pandemic had "a uniquely material and disproportionate effect" on Taubman compared with other mall operators, but more importantly, Taubman "failed to take steps to mitigate the impact of the pandemic," including not cutting operating or capital expenditures.
Simons says the merger agreement gives it the right to cancel the acquisition if the impact of the pandemic disproportionately fell on Taubman.
Simon's stock fell 4% in midday trading while Taubman's stock plunged 20%.