One of the first casualties in a financial crisis is mergers and acquisitions activity, especially transactions where the target company is being bought for cash. One acquisition from early February involving retail real estate investment trust (REIT) giant Simon Property Group agreeing to buy Taubman Centers is a prime example of this phenomenon. Just five short weeks after the deal was announced, the economy hit a brick wall related to the coronavirus pandemic as malls were shut down on orders from various government agencies, and millions in the U.S. were thrown out of work.
What has happened since February with this deal shows the difficulty of executing a merger during an economic crisis and what often ends up happening as a result of the uncertainty, including news this week of some big changes to the deal.
A deal cut in better times comes apart
In early February, Simon agreed to purchase 80% of the shopping center REIT Taubman Centers for $52.50 in cash, which was a 51% premium to Taubman’s pre-deal stock price. It was a deal negotiated in better times, as the economy was roaring and consumers were spending. Once COVID-19 shutdowns began, all of that economic activity ground to a halt, and Simon tried to get out of the deal.
