Buyer's remorse: Mall deal implodes as virus shakes retail

Full Screen
1 / 4

FILE - This Feb. 16, 2010 file photo shows the headquarters of the Simon Property Group in downtown Indianapolis. Simon Properties said Wednesday, June 10, 2020, that it is pulling out of its $3.6 billion to buy rival Taubman, citing the coronavirus pandemic which has forced many malls to temporarily close their doors. It is the second major retail deal to fall apart due to the pandemic. (Danese Kenon/The Indianapolis Star via AP, File)

NEW YORK – The nation’s largest mall owner is backing out of a $3.6 billion deal to buy a major rival as the coronavirus pandemic shakes the retail industry.

Simon Property Group announced it would buy Taubman Centers in early February, just weeks before the Centers for Disease Control and Prevention announced the first known case of coronavirus in the U.S. Clothing stores and malls nationwide were ordered to close the following month.

In its legal complaint Wednesday, Simon said that Taubman is uniquely vulnerable as stores reopen because most of its properties are indoor malls “that many consumers will avoid.” Simon also said Taubman broke its contract obligations by taking on more debt during the pandemic rather than cutting costs.

Taubman plans to fight Simon, calling its legal claims “invalid and without merit." It plans to go ahead with a shareholder vote on the deal later this month at its headquarters in Bloomfield Hills, Michigan.

Shares in Taubman Centers tumbled 20% Wednesday. Simon's stock lost 4%.

The pandemic has created more havoc in an already stressed retail environment, particularly for malls. Last month, a private equity firm backed out of a deal to buy Victoria's Secret. That chain had moved aggressively into malls at the direction of its parent company’s founder Les Wexner, who wanted to push lingerie into the mainstream.

Malls have struggled for years as shopping moved online and consumers grew tired of them. Their plight even inspired a haunting YouTube channel called the Dead Mall Series.

The coronavirus has delivered a devastating blow to those that remain and also stores with a big mall footprint. J.C. Penney, Neiman Marcus and J.Crew, have all filed for bankruptcy protection this year.