Making Sense Of Taubman's Counterclaim Against Simon Property

Mall owner Taubman Centers, Inc. TCO is taking legal action and says Simon Property Group Inc SPG has no right to terminate the merger agreement between the companies. 

What Happened: Simon agreed to acquire Taubman for $3.6 billion, or $52.50  per share, in February. The larger mall owner is looking to break the deal due to the COVID-19 pandemic.

On Wednesday, Taubman filed a counterclaim and said Simon is having "buyer's remorse," CNBC's David Faber reported on "Squawk on the Street."

"The Simon Parties agreed to a series of merger transactions with the Taubman Parties ... on February 9, 2020, at a time when the parties and the world were well-aware of the risks of the novel coronavirus pandemic," Faber quoted the legal papers as stating.

Taubman further argues that Simon Properties agreed to accept risks related to the pandemic.

Why It's Important: Simon's original legal complaint includes a "weak" argument, but that doesn't mean it ultimately won't succeed in the legal battle, Faber said.

A Simon spokesperson commented on Taubman's legal complaint, Faber said.

"The Merger Agreement explicitly provides that a pandemic that has disproportionately affected Taubman compared to others in the retail real estate industry gives Simon the right to terminate the Agreement," the spokesperson said. 

"Nowhere in its extensive legal filing does Taubman seriously contest that it was not disproportionately impacted."

What's Next: Under a worst-case scenario, Simon would have to proceed with its prior plans to acquire Taubman, Faber said.

Taubman investors appear to be betting on an acquisition, he said, or the stock would be "a lot lower" and "not be anywhere" near $37 per share.

Taubman shares were up 0.13% at $37.43 at the time of publication, while Simon Property Group shares were higher by 0.36% at $71.93. 

Related Links:

Why Taubman Centers Stock Is Trading Lower Today

BofA Downgrades Simon Property Amid Unprecedented Challenges In Retail