Simon agrees to buy rival Taubman Centers for $3.6 billion

Indianapolis-based Simon Property Group Inc. announced on Monday that it has agreed to acquire shopping center owner Taubman Centers Inc. of Bloomfield Hills, Michigan, for $3.6 billion.

The deal sends a resounding message that Simon remains a devout believer in retail real estate, even as the rise of e-commerce has knocked the sector out of favor across the globe. Investors have thrashed the stocks of retail real estate firms, including Simon, whose shares have tumbled 38% since July 2016.

Rather than using its deflated stock as currency for the purchase, Simon said it will pay entirely with cash. Simon said the per-share purchase price is $52.59, which represents a 51% premium to Taubman’s closing price on Friday.

Shares of Taubman Centers Inc. soared more than 52% before the market opened on Monday. Shares of Simon rose about 1%.

Simon CEO David Simon said in a statement that the purchase will immediately boost his company’s funds from operations, a key performance measure.

“By joining together, we will enhance the ability of [Taubman] to invest in innovative retail environments that create exciting shopping and entertainment experiences for consumers, immersive opportunities for retailers, and substantial new job prospects for local communities,” Simon said.

Taubman owns, manages or leases 26 super-regional shopping centers in the U.S. and Asia, with 25 million feet of gross leasable area.

That portfolio will continue to be managed by Taubman’s existing leadership team, led by CEO Robert Taubman.

In a press release, Simon and Taubman said they have agreed to work together to implement best practices to achieve operational efficiencies.

Under the transaction, the Taubman family will cash out about one-third of its ownership interest but remain a 20% owner of Taubman.

Malls have been littered by retail bankruptcies and store closings after a vast shift in the way Americans shop. 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.

A 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.

Mall companies are trying to avoid darkened areas inside their properties, which can exacerbate their problems and trigger lease clauses that allow tenants to renegotiate.

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.

Bloomberg News reported last week that the two companies had held merger discussions.