COVID-19 Puts Great Lakes Crossing and Twelve Oaks Mall Sales Agreement at Risk
CBS Detroit - The planned sale agreement of the Great Lakes Crossing Outlets in Auburn Hills, and Twelve Oaks Mall in Novi for $3.6 billion dollars is in jeopardy from the effects of Coronavirus on Michigan's economy.
According to the Detroit Free Press, The Simon Property Group, who is headquarters is in Indianapolis, said they plan on terminating the purchase agreement with Taubman Centers. Taubman's property includes the two remaining mall properties they have in Michigan. Simon Property Group is also the United States' largest mall owner/operator.
Originally the deal was close to being made around February 9th, right before COVID-19 restrictions closed virtually all retail except to those selling essential items. When the Coronavirus restrictions hit, the deal was yet to be completed.
A representative for Simon Properties said that due to Coronavirus, "extreme actions" may be necessary to save their company. Taubman claims Simon is legally bound to the agreement and will fight it. The Free Press reports Taubman even called a special meeting of their shareholders to approve the deal.
In a news release, Simon Property Group said the COVID-19 pandemic has had a uniquely material and disproportionate effect on Taubman compared with other participants in the retail real estate industry,". They also added, in the wake of the pandemic, Taubman has breached its obligations, which are conditions to closing, relating to the operation of its business,".
Simon claims the sale agreement gives them a specific right to cancel if a Pandemic has caused harm to Taubman's business. Taubman operates many malls aimed at higher stores and consumers. Which has been affected by the Coronavirus.
Erik Gordon, a professor at UofM's Ross School of Business told the Free Press that Taubman might have a chance to win if it fights in court. Saying Simon Property Group might doing this to lower the sale price. "Companies usually lose claims that they can back out of a deal because of a material adverse change that affected the target company differently than it affected other similar companies," Gordon said.
In court filings in the Oakland County Circuit Court, Simon Property Group sought for a declaration that Taubman suffered "material adverse event", breaching agreements in the contract. The agreement stipulated Taubman was to sell one-third of its stake while retaining ownership in Taubman Realty Group LP. Taubman Chairman and CEO Robert S. Taubman were to keep his position as senior management.
Simon claimed in its filings, that due to COVID-19, malls like the ones owned by Taubman will be the last places shoppers wish to visit. Citing that customers with higher incomes will favor online retailers. Which will affect malls like Taubman's to charge premium lease rates.
Simon also cited problems as many mall retailers who are the primary anchor stores, such as J.C. Penney, Neiman Marcus, and J. Crew have had to file bankruptcy. Sears had to file Chapter 11 protection last year, which prompted the closing of its store in the Twelve Oaks Mall.
Simon wrote in its filing, "As a result of Taubman's failure to operate in the ordinary course, even more, extreme actions will be necessary in the future in an attempt to rescue its business," the filing says. "Far from preserving jobs or helping its employees, Taubman's actions will ultimately jeopardize more jobs, harm its employees, and damage the company, even as Taubman's executives maintain their lucrative compensation."
In the past, Taubman fought hard to prevent a hostile takeover from Simon in 2003. The $1.7 Billion dollar attempt was canceled when Governor Granholm signed into law changes in Michigan's Anti-Takeover laws. titled the Michigan Control Share Acquisitions Act. It allowed Taubman to block offers. Even in Lansing, it was known as the "Taubman Bill". As this played out, company founder Taubman founder, A Alfred Taubman served 91/2 months in prison for price-fixing in the auction house market.
SimoonProperty Group owns and operates more than 200 malls and shopping centers. Which includes Birch Run Outlets, and Briarwood in Ann Arbor. Taubman has 26 malls or shopping centers nationally.
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