America’s biggest shopping centre owner Simon Property Group is seeking to walk away from a $3.6bn agreement to buy smaller rival Taubman Centers, the latest transaction to be thrown off course by the coronavirus crisis.
Simon on Wednesday filed a lawsuit against Taubman to get out of the all-cash deal, arguing its former target had breached the terms of the agreement since it failed to rein in expenditure and take other steps to respond adequately to the pandemic.
The group also claims Taubman has been “disproportionately” hurt by the outbreak, which constituted a so-called material adverse event that gives it a second legal route to abandon the acquisition.
Shares in Taubman dropped 21 per cent in New York to leave them trading at $36 by midday, substantially less than the $52.50 price Simon agreed to pay in February.
Before the lockdowns ravaged the retail sector, Simon had coveted Taubman and agreed to pay a 51 per cent premium to its closing share price before the deal was made public.
Simon was attracted to Taubman in part because its portfolio comprises desirable sites with high-end tenants, making it less exposed to the pressures in mass-market retail. Its 26 properties in the US and Asia include locations in Palm Beach, Nashville’s affluent Green Hills and near Beverly Hills in Los Angeles.
However, discretionary bricks-and-mortar retailers of all kinds have been hit hard by coronavirus, which forced Taubman to close all of its US shopping centres.
On Wednesday, Simon said Taubman was even more vulnerable than other companies in the sector, in part because it was particularly exposed to enclosed malls in densely populated cities and was dependent on tourism at many of its properties.
The takeover agreement “specifically gave Simon the right to terminate the transaction in the event that a pandemic disproportionately hurt Taubman”, it said.
Simon also maintained that Taubman had “failed to take steps to mitigate the impact of the pandemic as others in the industry have”, such as reducing costs.
The group is calling for a court in Michigan, where Taubman is based, to rule that the agreement is no longer valid. Taubman did not respond to requests for comment.
Several other multibillion-dollar US deals have fallen apart or been the subject of legal battles to terminate them as buyers look for ways out of transactions agreed before the pandemic.
Sycamore, a private equity group, agreed with the owner of Victoria’s Secret to terminate a deal that would have given it a controlling stake in the retailer. The buyout group had sued L Brands for breaching the terms of the merger agreement when it cut the pay of senior staff and furloughed store staff in response to the outbreak.
Carlyle Group and Singapore’s sovereign wealth fund GIC are in a legal fight to end their acquisition of a stake in American Express Global Business Travel, a test case for companies suffering from post-Covid buyers’ remorse.