Simon, Taubman Reduce $3.6B Merger Price and Proceed With Transaction
In June Simon Property Group announced it was terminating its merger agreement with Taubman Centers because it had experienced a material adverse event with the coronavirus.
On Sunday Simon Property Group and Taubman Centers announced that they had reached an agreement to modify the terms of a $3.6 billion merger agreement struck earlier this year, including a new purchase price of $43.00 per share in cash and other provisions.
Under the original deal Simon agreed to acquire an 80% ownership interest in Taubman for cash, buying all of Taubman common stock for $52.50 per share.
The agreement was announced a few short weeks before the pandemic made its presence known in the US and the economy started to shut down in response. By June Simon Property Group announced it was terminating the agreement and filed suit in the Circuit Court for the 6th Judicial Circuit of Oakland County, Mich.
It argued that Taubman has experienced a material adverse event with the coronavirus, suffering disproportionately from the pandemic compared with its peers and that it hadn’t fulfilled the requirements of the merger agreement. Taubman pushed back, calling the termination invalid and that it would vigorously contest Simon’s decision.
Analysts speculated that while Simon might be serious in its attempt to end the agreement, the suit might also have been an opening salvo in some heavy-handed price renegotiations.
Point analyst Floris van Dijkum was particularly prescient. “We continue to believe that both companies will come to their senses and agree to a price between $36 to $42 per share which would allow both sets of shareholders to claim victory,” he wrote in a research note at the time.
Under the modified merger agreement the two REITs have negotiated, Simon will still hold an 80% ownership interest in The Taubman Realty Group Limited Partnership and the Taubman family will sell one-third of its ownership interest at the transaction price and remain a 20% partner in TRG.
The Boards of Directors of Simon and Taubman, including the Special Committee of independent directors of Taubman, have approved the terms of the transaction. The modified merger agreement provides that Taubman will not declare or pay a dividend on its common stock prior to March 1, 2021, and then, only subject to certain limitations and conditions.
The merger is expected to close in late 2020 or early 2021, subject to Taubman shareholder approval and customary closing conditions. Simon and Taubman also have settled their pending litigation.