2nd big mall deal in as many weeks; Simon buys Taubman
The Simon Property Group will buy Bloomfield Hills-based mall operator Taubman Realty in a deal valued at around $3.6 billion as those properties continue to struggle along with their retail tenants.
Indiana-based Simon Property Group Inc. is the nation’s largest mall operator and in Michigan already owns Birch Run Premium Outlets and Briarwood Mall in Ann Arbor. Taubman Realty owns, manages or leases 26 shopping centers in the United States and Asia, including Twelve Oaks Mall in Novi and Great Lakes Crossing in Auburn Hills.
Simon will pay $52.50 a share in cash for all of Taubman’s common stock, the companies said in a statement Monday. That’s about 51% more than Taubman’s closing share price on Friday. The news sent Taubman’s shares surging more than 53% to $53.12 in trading Monday, while Simon was up 1.5% to $143.06.
The Taubman family will sell about one-third of its ownership stake at the transaction price and remain a 20% partner in Taubman Realty Group LP, which would give Simon an 80% interest in the company when added to the common stock.
"David (Simon) and I have known each other forever and have been able to develop a terrific relationship in the last few years," CEO Robert Taubman, son of A. Alfred Taubman, the late founder of the company, said during a conference call. "I'm looking forward to working closely with him and the new board to execute on our portfolio's next phase of development and growth. The retail environment is constantly evolving, and we must continue to adapt as well."
Maria Mainville, Taubman spokeswoman, said both Taubman and Simon will continue to operate as usual and as separate companies until the transaction closes. "After the transaction is completed, Taubman expects to operate much as we do today, including related to the ownership of our properties and how we serve our shoppers."
The acquisition of a majority stake in Taubman is expected to close by the middle of the year. It still needs approval from two-thirds of the outstanding Taubman voting stock and a majority of outstanding Taubman voting stock not held by the Taubman family.
Malls have struggled with retail bankruptcies and store closings after a vast shift in the way Americans shop.
Since 2015, only nine malls have been built, a dramatic fall from their peak construction in 1973 of 43, according to CoStar Group, a real estate research firm.
Vacancy rates at malls are hoovering around 4% on average , says CoStar, though struggling malls are closer to 7% vacant.
Last week Macy’s, a cornerstone in many malls, announced that it is closing 125 of its least productive stores and cutting 2,000 corporate jobs. The store closures represent about one fifth of all its locations and are in poor-performing malls. And consortium of buyers, including mall owners Simon and Brookfield Property Partners, bid $81 million last week for Forever 21, the ubiquitous mall staple that filed for bankruptcy protection in September.
Several years ago, Simon and the company that became Brookfield Property Partners, another big mall operator, teamed up to save struggling teen apparel retailer Aeropostale, which was in bankruptcy.
Traditional malls are adding more entertainment and other non-retail options like restaurants and gyms to create new energy at their properties. They’re also trying to avoid darkened areas inside their properties, which can exacerbate their problems and trigger lease clauses that allow tenants to renegotiate.
A. Alfred Taubman, who was born in Pontiac, started developing shopping malls in the 1950s. He died of a heart attack in 2015.
The family has been a major donor to the University of Michigan, where there's the A. Alfred Taubman College of Architecture and Urban Planning. UM also has the Taubman Health Sciences Library, the A. Alfred Taubman Health Care center attached to University Hospital, and the Taubman Medical Research Institute.
Taubman also funded the A. Alfred Taubman Student Services Center and the A. Alfred Taubman Engineering, Architecture and Life Sciences Complex at Lawrence Technological University. He also donated to Taubman centers at Brown University and Harvard University, and the A. Alfred Taubman Center for Design Education at the College for Creative Studies in Detroit.
But he faced legal troubles. Taubman was convicted by a federal jury in 2001 for fixing prices at Sotheby's Auction House and served 9½ months in prison before being released in May 2003.