Analyst Note
| Kevin Brown |Simon Property Group announced that they have modified and re-entered into a definitive agreement to acquire 80% of Taubman Centers. Simon originally announced the merger back in February at $52.50 per share for a total consideration of $3.6 billion. However, with the market downturn following the outbreak of the coronavirus, Simon pulled out of the deal in June as management sought to renegotiate the price. The management teams of Simon and Taubman have agreed upon a new price of $43 per share or 18% below the prior per share price, which values the Taubman Centers owns 26 high-quality retail properties at just under $3 billion. Taubman's portfolio of Class A malls is heavily reliant on international and domestic tourism, so we believe that COVID-19 has had a greater negative impact on Taubman's Class A malls than Simon's Class A malls. Still, the lower price offsets Simon taking on the near-term weakness and benefits the long-term value provided by the merger. We view the overall deal as a modest positive for Simon's bottom line, leading us to reaffirm our $152 fair value estimate for the no-moat company.