A Setback for Taubmans
Judge rules allies can't vote freely to block takeover

By Gary Haber
The Detroit Free Press Business Writer
May 9, 2003

A federal judge's ruling Thursday handed the Taubman family a major setback in its effort to keep the country's largest mall developer from taking over Taubman Centers Inc., started 50 years ago by A. Alfred Taubman.

U.S. District Judge Victoria Roberts ruled that Taubman family members and associates can't vote any part of their 33.6-percent stake to block Simon Property Group's $20-a-share hostile takeover bid without obtaining approval from the remaining shareholders of the Bloomfield Hills-based shopping center company.

The chance of shareholders unaffiliated with the Taubmans siding with the family is slim, since about 85 percent of them offered to sell to Indianapolis-based Simon, and its partner, Westfield America Inc., the U.S. arm of an Australian mall owner.

"We remain committed to give" Taubman's "shareholders the opportunity to accept our $20 per share offer and" Thursday's "court decision is a significant step in that direction," Simon and Westfield said in a press release.

Taubman Centers vowed to appeal Roberts' decision.

"This ruling is so wrong that we are extremely confident that it will not withstand our appeal to the 6th Circuit," the company said.

Neither side would comment further.

Taubman had argued that only 3 percent of the shares under its control needed approval from other shareholders in a takeover vote.

Matt Ostrower, an analyst with Morgan Stanley,said the ruling doesn't resolve the battle for control of Taubman Centers.

"It's a big legal setback" for Taubman Centers, "but it's only one important battle in the war, not the war itself," Ostrower said. "The Taubmans have said they will appeal, and it's not sure how this will play out."

Patrick O'Keefe, president of O'Keefe & Associates, a Bloomfield Hills turnaround firm with retail clients, said that Simon is trying to neutralize a major competitor.

"It's clearly a defensive measure by Simon to protect the value of its existing portfolio," O'Keefe said.

Simon likely will seek a special shareholder meeting to gain approval for its takeover.

Taubman Centers, founded by Alfred Taubman in 1950 with a $5,000 loan, owns or manages 30 regional shopping malls. Its portfolio includes some of the toniest retail properties in the country, including the Beverly Center in Los Angeles. Its metro Detroit malls include Fairlane Town Center in Dearborn, Great Lakes Crossing in Auburn Hills and Twelve Oaks Mall in Novi.

If Simon and Westfield prevail, they will likely divide Taubman's malls between them, Ostrower predicted. The split would probably be along geographic lines, with Simon taking Taubman malls in the East and Midwest and Westfield in California.

It is also possible that other major mall owners could make a bid for Taubman, or that Taubman family members could try to take the company private, Ostrower said.

The ruling may force Taubman to negotiate with Simon for a better price than $20 a share, Jonathan Couchman, general partner at New York-based hedge fund Couchman Capital and a Taubman Centers shareholder, told Bloomberg News.

The Taubman family obtained control of 30.6 percent of voting shares in the company in a 1998 transaction. Late last year, friends of the family signed over voting rights for 3 percent of shares to Robert Taubman, the chairman and chief executive, and he said then that the purpose was to prevent an unsolicited takeover.

Roberts' decision Thursday clarifies one she made last week that left both mall owners claiming victory.

Alfred Taubman is to be released to a Detroit-area halfway house May 15. He was sentenced to one year in federal prison in Minnesota after being convicted of fixing auction house commissions as chairman of Sotheby's.

Roberts' decision was released after the close of the stock market Thursday, when shares of Simon closed up 45 cents at $38.49 and Taubman Centers up 6 cents at $18.60.

In after-hours trading, Taubman shares were up 90 cents.

Contact Gary Haber at 313-222-6159 or haber@freepress.com.