Simon Property Group, the country’s largest mall owner, is buying Taubman Centers, the smaller rival that it’s had its eye on for nearly two decades.
The two companies announced Monday they had reached an agreement for Simon to buy an 80 percent stake in Taubman at $52.50 per share. That’s a 51 percent premium over Taubman’s closing price on Feb. 7.
The Taubman family will retain 20 percent ownership.
The deal puts an end to one of the longest-running will-they, won’t-they stories in REIT mergers and acquisitions.
Taubman Centers, the $2 billion mall company that’s been tightly held by the Taubman family since 1950, successfully fended off a hostile takeover bid by Simon and Westfield in 2003.
But this time around, the Taubmans appeared to be in a weaker position.
That’s because CEO Bobby Taubman, whose father founded the Bloomfield Hills, Michigan-based mall operator, has recently bowed to investor pressure and ceded his family’s tight grip on the real estate investment trust’s board of directors.
All nine members of the board will be up for election at the same time this year. That meant David Simon and his $45 billion mall giant could have run a slate of directors who would vote in favor of a tie-up.
“This is the first year Taubman seemingly does not control its own destiny in terms of an M&A transaction,” Green Street Advisors analyst Vince Tibone wrote in a note last week after Bloomberg reported that Simon and Taubman engaged in merger talks beginning late last year. “A new board could decide to make a change in leadership and if Taubman were to lose control of its family business, a sale of the company would seem inevitable.”
A spokesperson for Taubman declined to comment and a representative for Simon did not immediately respond to a request for comment.
Observers have long noted that the two companies would make a good fit with one another. Simon is the largest mall operator in the country with a portfolio of 233 malls, outlets and other properties in North America, Europe and Asia. Green Street values the assets at about $100 billion.
Taubman is a much smaller company with interests in just 24 properties, valued by the advisory firm at about $11 billion. But it’s widely viewed by observers to be the highest-quality mall operator in the country with the best anchor tenants and mix of stores.
Long after the 2003 takeover bid, the M&A drum continued to beat.
Most notably, activist investor Jonathan Litt took a position in Taubman in 2016 and started pushing for changes to the company’s corporate governance. The Taubman family owns roughly 2.9 percent of the company’s common stock. But through ownership of preferred shares under the REIT’s dual-class share structure, the Taubmans control about 30 percent of the voting rights.
That means a hostile bidder would need to convince six of the board’s nine members to vote in favor of a sale.
Another advantage the family held was the board’s staggered structure, meaning all nine directors normally stood for election at different times instead of at the annual meeting. Litt unsuccessfully pushed to unseat Bobby Taubman from the company’s board. But he did prevail in compelling the REIT to hold de-staggered elections.
In an open letter to investor’s last year, the activist investor hinted at the possibility of waging a contentious proxy contest this year.
“All directors and specifically, Bobby Taubman, can be held accountable by shareholders for the company’s atrocious absolute and relative performance for the first time since 2017 at the annual 2020 meeting,” he wrote.
Indeed, while Green Street’s Tibone noted that news of the talks didn’t necessarily describe them as hostile, he wrote, “they probably aren’t overly friendly conversations either.”
Contact Rich Bockmann at rb@therealdeal.com or 212-673-5081.
Clarification, April 8, 2020: This article has been revised to reflect that the Taubman family’s control of about 30 percent of Taubman Centers voting rights stem largely from its ownership of preferred shares.