Simon Property nixes deal to buy rival mall owner Taubman

The owner of Woodfield Mall in Schaumburg and three other suburban malls is terminating its $3.6 billion bid to buy rival mall owner Taubman Centers, arguing that its rival mall owner has breached the merger agreement by not taking steps to mitigate the fallout from the coronavirus pandemic.

Indianapolis-based Simon Property Group said in a statement Wednesday it has "exercised its contractual rights" to terminate the deal, which was announced in February before the pandemic battered malls. The company said it was asking a court to declare that Taubman has suffered a "material adverse event" and "breached the covenants in the merger agreement."

Taubman - the company that developed Woodfield Mall 50 years ago - didn't immediately respond to a request for comment.

Prospects for bricks-and-mortar retail have changed dramatically since the deal was announced back in February. Stay-at-home orders to curb the spread of COVID-19 have shuttered stores, pushing consumers deeper into online shopping.

Landlords, already pressured by declining foot traffic and retailer bankruptcies, may face a wave of new vacancies as the pandemic forces more tenants out of business.

For months, analysts and industry observers have speculated that Simon would seek to get a lower price for a deal that was announced weeks before the U.S. economy was shuttered by the pandemic, which has been particularly hard on malls and retailers.

The move by Simon on Wednesday could be a renegotiating tactic, according to Lindsay Dutch, an analyst at Bloomberg Intelligence.

"If Taubman's stock drops by a certain amount, maybe they would try to go renegotiate," Dutch said.

While Americans stuck inside for months have shown a willingness to return to stores, there are major challenges ahead for enclosed malls.

Simon argued in the statement that Michigan-based Taubman had failed to make "essential cuts" in operating expenses and capital expenditures and that the company's properties have been hit particularly hard by the outbreak.

"Taubman's significant proportion of enclosed retail properties located in densely populated major metropolitan areas, dependence on both domestic and international tourism at many of its properties, and its focus on high-end shopping have combined to impact Taubman's business disproportionately due to the COVID-19 pandemic when compared to the rest of the retail real estate industry," Simon said.

Taubman Centers, with partner Homart Development, opened Woodfield in 1971 as the largest in the U.S. with 59 stores, including anchors Sears, Marshall Field and J.C. Penney. The mall still remains the largest in Illinois and as been one of the top tourist attractions in the state for decades. Simon Properties took over management of the mall in 2013.

In addition to Woodfield, Simon also manages Gurnee Mills in Gurnee, Chicago Premium Outlets in Aurora and Orland Square Mall in Orland Park.

• Daily Herald Business Ledger Editor Richard Klicki contributed to this report.