Round One to Taubman

A U.S. District Court in Michigan has granted the motion by Taubman Centers (Bloomfield Hills, Mich.) to dismiss a claim of Simon Property Group (Indianapolis) that the Taubman family illegally gained control of the shopping center-management company.

Simon Property, the nation's largest owner of shopping malls (which has been attempting to gain control of the rival organization), had accused its competitor of breaching fiduciary duties and challenged the way the Taubman family obtained its voting control, which effectively gives it a blocking position on any takeover.

One accusation contended that the Taubman family's stake was increased to 30 percent from 1 percent in 1998 without a shareholder vote, in violation of a Michigan law meant to protect companies from hostile takeovers.

The judge dismissed that claim, ruling that “the Michigan Control Share Act does not pertain to a direct issue from the corporation of its own shares.” But the judge denied a motion by Taubman Centers to dismiss another part of the complaint, which contends that the family violated the law recently by acting in concert with other shareholders to increase its voting control to 33.6 percent from 30 percent. That move would have given the family the ability to block a takeover, which would require a two-thirds vote by shareholders. The judge found that Simon Property had “sufficiently pled that a group was formed and that the shares acquired by the group constituted a 'control share acquisition' within the meaning” of the law.

While ceo Robert Taubman heralded the ruling as a victory for his company and his family, Simon Property said it too was pleased with the court's ruling that it could still pursue part of its claim as it seeks to persuade shareholders to accept its, which is valued at $20 a share.

The decision still leaves room for Simon Property to make its possibly stronger claim: that the board of Taubman Centers is not fulfilling its fiduciary duty by repeatedly rejecting Simon property's bids. A hearing is scheduled for March 21. But Simon will have had to win over the Taubman shareholders before then. Simon said it would abandon its takeover campaign if fewer than two-thirds of Taubman Centers shareholders tendered their shares by Feb. 14, 2003.

Taubman Centers owns about two dozen mostly “super-regional” shopping centers (including the Mall at Short Hills, N.J.) It was founded by former Sotheby's chairman A. Alfred Taubman, now in jail for fraud. Simon Property manages more than 250 shopping malls and community shopping centers properties totaling about 185 million square feet, including The Mall of America (Minneapolis), The Forum Shops at Caesars (Las Vegas) and The Fashion Center at Pentagon City (Washington, D.C.).