Summary
- After months of legal conflict between the two firms, Simon Property agreed to buy Taubman Centers' parent company.
- This is at a substantial discount to the deal agreed upon earlier this year.
- This move should be looked at as a positive for Simon, which had been prepared to overpay for Taubman but now has a good price should the company recover.
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2020 has been a wild ride for shareholders in both Simon Property Group (SPG) and Taubman Centers (TCO). Back in February, news broke that Simon was going to acquire 80% of Taubman Realty Group, the parent of Taubman Centers, in a deal valuing that 80% stake at $3.6 billion, plus another $119 million in operating units. Amidst the COVID-19 pandemic, Simon made clear in June that it was backing away from the merger, only for Taubman to take Simon to court in response. Now, on November 15th, it has become clear that the saga is not over just yet. The two firms have come to an undisclosed settlement, plus Simon has agreed to buy Taubman, albeit at a price that is substantially lower than what it had initially agreed to pay for the firm. Assuming Taubman’s financial condition does eventually turn around from the recent downturn it has been hit by, Simon’s move will be considered a more attractive one than it was at the higher buyout price, though this does unfortunately come at the cost of Taubman’s own shareholders.
A revision to expectations
Back in February, when Simon announced plans to acquire Taubman, the company stated that it had agreed to buy the firm for $52.50 per share. To be precise, it wasn’t the entire firm though. It was 80% of Taubman Realty Group, which owns Taubman. The remaining 20% of Taubman not acquired by Simon would remain owned by the Taubman family, down from the 29% of the business they owned at the time. The Taubman family did have the right, after a two-year lock-down period, to exchange their remaining 20% of the business for cash or shares in Simon. This buyout price represented a premium of 51.4% over the $34.67 per unit that shares traded for immediately prior to the deal being announced.
In sum, Simon was slated to pay $3.6 billion in cash to Taubman’s shareholders for the 80% stake. This was on top of $119 million worth of Simon operating units that would be paid out. At the time, this implied a price/FFO (funds from operations) multiple of 15 for Taubman. It also implied a price/AFFO (adjusted funds from operations) multiple of 14.2 for the business. This was all based on 2019’s FFO and AFFO figures.
