In late December, Simon Property Group (NYSE: SPG) completed its acquisition of an 80% ownership interest in Taubman Realty Group (NYSE:TCO). As part of the deal, Simon acquired all of Taubman's common stock at a cost of $43 per share, and the Taubman family sold roughly one-third of its ownership interest at the transaction price and remains a 20% partner in the venture. Taubman owns, manages, or leases 26 premium shopping malls in the U.S. and abroad.
All told, the purchase cost Simon a cool $3.4 billion, which it paid cash for from existing liquidity. But that wasn't the initial offer on the table. Back in February, Simon had originally agreed to pay $52.50 a share for Taubman but subsequently tried to back out of the deal. The question: Is Simon now "stuck" with Taubman as part of its portfolio? Or is this new acquisition something the mall operator should celebrate?
A deal gone awry
Back in February, buying Taubman may have read like a good deal for Simon, but then the coronavirus pandemic struck and wreaked havoc on malls nationwide. Suddenly, the idea of operating extra mall space became a liability more so than a welcome challenge, and so Simon did what it could to back out of its contract.
At one point, it seemed like Simon had a leg to stand on in its efforts to bail, citing that Taubman had failed to take steps to mitigate the damage from the coronavirus pandemic and had, as such, breached its contract. In fact, Taubman's stock price plunged in mid-June once Simon made it clear it was looking to back out. But Simon's attempt to have the deal invalidated in court was futile, as Taubman countersued to move the purchase forward. In November, Simon acquiesced, but Taubman took a haircut in the process, with Simon's initial $3.6 billion bid dropping down to $3.4 billion.
A welcome portfolio addition for Simon?
Back in November, the Taubman acquisition had started to look like a really bad deal for Simon. But now, with widespread coronavirus vaccines getting increasingly closer to becoming reality, there's a good chance mall traffic will explode once consumers feel more confident with the idea of in-person shopping. As such, while Simon may have felt compelled to hold up its end of what started to look like a really bad bargain, there's now real opportunity for it to capitalize on Taubman's mall space in a post-coronavirus world. And the fact that Simon saved itself roughly $800 million by revising the terms of its original deal isn't a bad thing.
In fact, Simon maintains that it's pleased with the transaction and is excited to add Taubman to its portfolio. The mall operator says it hopes to establish innovative retail environments for consumers, all the while creating jobs -- many of which were inevitably lost in the course of the pandemic.
Only time will tell if buying Taubman ultimately proves to be a smart move for Simon, but it's clear that the country's largest mall operator intends to make the best of an otherwise forced situation.