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In brawl over malls, takeover target not going quietly

An old-fashioned takeover war is brewing in the shopping mall business, and anyone who thinks the target will surrender peacefully hasn't paid attention to its biggest shareholder's last prolonged battle.

The Taubman family controls both Taubman Centers Inc., a big owner of glitzy shopping malls, and Sotheby's Holdings Inc., the owner of the glitzy auction house. Last week, rival mall owner Simon Property Group Inc. launched a hostile takeover battle against Taubman Centers, sending shares of the weak-performing company to their highest point ever.

Taubman Centers immediately rejected the offer, which was made last Wednesday at a 18 percent premium to Taubman's share price. The Taubman family, which controls 30 percent of the company's voting rights, quickly counterattacked, saying it was "categorically opposed to the sale of the company." And on Friday, it brought in reinforcements, saying it had persuaded several close associates of the family to sign over voting rights on their shares, to give the Taubmans veto power over any sale.

To some investors, the rejection of Simon Property's bid indicates that the Taubman family may care for outside shareholders in Taubman Centers as much as it has for investors in Sotheby's, whose share price has plunged 83 percent since its 1999 high. Even as the auction house was battered by price-fixing charges that put then-chairman A. Alfred Taubman, founder of Taubman Centers and father of the mall company's chairman and chief executive, behind bars, the Taubmans for months resisted some shareholders' entreaties to sell, among other things.

To be sure, by resisting Simon Property's advances, the Taubman family may push up the price of a deal. But that isn't the Taubmans' stated intention.

The Taubmans also long resisted strenuously a sale of Sotheby's. "The Taubman family interest in Sotheby's is not for sale," Robert Taubman, son of Alfred, Sotheby's board member, and chairman and CEO of Taubman Centers, said in 2000, right before he was elected to Sotheby's board over the objections of outside shareholders.

At that point, federal investigators were breathing down the family's neck as they looked into whether Sotheby's conspired to fix prices with Christie's International PLC, its archrival in the auction business. The family paid high-powered legal and financial talent to help it fend off demands for a sale by the outside shareholders. Most notable among those: Ron Baron, whose Baron Capital Group remains Sotheby's largest shareholder, with 40 percent of the company's Class A shares. The Taubmans' control the company through their ownership of Class B shares, which gives them the right to name 75 percent of Sotheby's board.

While the Taubmans put Sotheby's on the block in 2001, that went nowhere. This past June, as Alfred Taubman was about to go to jail, sales efforts got rolling in earnest. At that point, people familiar with the situation say, the company sent around financial information to prospective buyers. Recently, they called for first-round bids, and, according to people close to the discussions, at least three bidders have put in preliminary offers.

While the bidders' names and offers aren't known, the people familiar with the process say potential buyers include wealthy families with ties to the art world, leveraged-buyout firms and other financial firms. Sotheby's aims to pick a winner by early next year, the people say.

Sotheby's spokeswoman Diana Phillips wouldn't comment specifically on a potential deal.

But for outside shareholders, it likely will be a case of too little, too late. Sotheby's shares traded at $7.90 apiece, down six cents, as of 4 p.m. Tuesday in New York Stock Exchange composite trading, down more than 50 percent from their 52-week high of $17.81. Even the most enthusiastic bidder wouldn't think of paying the $47 each share fetched in 1999, before the scandal broke.

Now, consider Taubman Centers. Shares of the real estate investment trust surged to a record $16.59 last week after Simon's $17.50-a-share bid was announced. Taubman Centers went public in 1992 at $11 and briefly hit a peak of $16 earlier this year. The company, never a high-flier, was badly lagging behind its mall-company peers for the one-year and three-year periods just before the Simon Property bid, according to Green Street Advisors Inc., a real estate research firm. Shares of Taubman Centers traded at $16.55 each, up 10 cents, on the Big Board.

That share price may not hold up very well when investors realize how hard the Taubmans are likely to fight to keep control of their company.

The appeal of the company to Simon: Taubman Centers, among the smallest of the major mall operators, owns 21 of the most upscale malls in the country, including the Short Hills Mall in New Jersey and the new Mall at Millenia in Orlando. Simon Property is far larger, owning 175 mainly middle-of-the-road malls, and its stock has been a much better performer.

Simon owns three malls in the Tampa Bay area: Tyrone Square in St. Petersburg, Gulf View Square in Port Richey and Crystal River Mall. Taubman manages International Plaza in Tampa and owns 26 percent of the upscale property.

Intriguingly, the battle also features scions of two of the mall industry's most prominent families, whose patriarchs were among the pioneering shopping mall builders in post-World War II America. Simon Property's CEO David Simon, 41, is the son of Melvin Simon and the nephew of Herbert Simon, both co-chairmen of Simon Properties. Alongside Alfred's son Robert, 48, as Taubman Centers CEO and chairman, another son, William, is an executive vice president. There is no love lost between the Simons and the Taubmans, several people familiar with their relationship say.

So it isn't a surprise that Taubman and Simon are each building up an arsenal for a long, ugly battle. Taubman Centers has hired Goldman Sachs Group Inc. and law firm Wachtell, Lipton, Rosen & Katz to advise in its defense. Simon Property is attacking with Merrill Lynch & Co. and legal counsel Willkie Farr & Gallagher. Both sides have launched public relations broadsides.

On Friday, the Taubmans said nonfamily members had handed over voting rights that gave the family more than a third of the voting power, enough to block a sale of the company, which requires a two-thirds majority. Among those nonfamily members: Max Fisher, a 94-year-old Sotheby's board member who used to be the auction house's vice chairman, and Robert Larson, former vice chairman of Taubman Centers, who now is chairman of Lazard Freres Real Estate Investors LLC. Through a spokesman, Larson declined to comment. Fisher, who wasn't available for comment, is on the board of Comerica Inc., the Michigan bank, with Robert Taubman.

Several real estate investors who own shares in both mall companies say they hope the independent directors of Taubman Centers will give the bid a serious look. "One would imagine in this day and age that the independent directors would need to take a more forceful view," says Matt Troxell, a portfolio manager at AEW Capital Management in Boston.

_ Information from Times files was used in this report.

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