In Washington, A. Alfred Taubman will always be remembered as The Man Who Killed Woodies.
Besides buying and bankrupting Woodward & Lothrop, Washington's last independent department store chain, Taubman is also known for the commission-fixing scandal at Sotheby's, the arty New York auction house he also owned.
Now the shopping center empire that made Taubman rich enough to buy Woodies and Sotheby's is under siege. The octogenarian developer can do little to defend the family firm, because he is paying the price of his price fixing with a one-year sentence at the Federal Medical Center in Rochester, Minn., one of Uncle Sam's swankiest slammers.
Two rival shopping center chains have teamed up to try to take over Taubman Centers Inc., a collection of 30 upscale malls including Fair Oaks in Fairfax County, Lakeforest in Montgomery County and Marley Station in Anne Arundel County.
The $1.7 billion hostile bid for Taubman Centers was launched last fall by Simon Property Group Inc. of Indianapolis, the nation's largest mall owner, with 242 properties and 183 million square feet of retail space. Simon was later joined by Westfield America Trust, the U.S. branch of Westfield Holdings, an Australian real estate company that owns 63 centers with 64 million square feet of stores in the United States.
Like most takeover battles, this one is a mud-wrestling match between billionaires, with a lot of money at stake for investors who own shares in their companies. All three are real estate investment trusts, a favorite holding of individual investors because they generally pay good dividends.
But every shopper in the Washington region has an interest in this fight, because it could reduce shopping center competition in this market.
Simon owns Pentagon City, Bowie Town Center, St. Charles Towne Center in Waldorf, Apple Blossom Mall in Winchester and several other Maryland and Virginia properties. Westfield owns what most of us still call Montgomery Mall and Wheaton Plaza.
The Simon, Taubman and Westfield properties add up to a huge chunk of the metropolitan market. Perhaps not enough to raise legally actionable antitrust issues, the concentration of control of shopping centers nonetheless could affect which big chains have stores in which mall.
At this stage no one knows whether Simon and Westfield will succeed in taking over Taubman or what will happen to Taubman's malls if they do.
Simon and Westfield could simply decide to share ownership of Taubman Centers and operate it as a separate joint venture. But that would require keeping Taubman's corporate management, which means a lot of overhead expenses that could easily be eliminated.
A more likely scenario is that Westfield and Simon would divide up the 30 Taubman properties. That's what happened last year when Simon, Westfield and the Rouse Co. of Columbia teamed up to do a hostile takeover of Rodamco America NV, another mall operator about the size of Taubman. Neither Westfield nor Simon has publicly commented on plans for the Taubman properties.
If Westfield wound up with Lakeforest, which is located just off I-270 north of Gaithersburg, it would control three of the four biggest malls in Montgomery County.
(Another downside is Westfield's dreadful policy of renaming all the centers it buys Westfield Shoppingtown. Three Shoppingtowns would leave Montgomery County shoppers totally confused about which mall is which. I personally avoid that linguistic limbo by calling the company's Bethesda project what most kids in the county grew up calling it: Monkey Mall.)
Nomenclature notwithstanding, concentration of mall ownership opens the door to all kinds of anti-competitive possibilities. You could, for example, create a class system among malls, steering upscale retailers to one center, encouraging more mundane merchants to choose another. Mall owners and major retailers might team up to keep competing retailers out of certain places. And you can bet that anyone who owned several malls in the same region would lobby like crazy with local planning officials to block anyone who proposed building another shopping center.
This is not to suggest that Westfield or Simon have done or would do anything improper or anti-competitive, but such things do happen.
"There is no risk to competition in the marketplace," said Peter Lowy, managing director of Westfield America. Taubman's Lakeforest project is miles away from the Westfield Shoppingtowns in Bethesda and Wheaton, he noted, and Simon's Pentagon City is even farther from Taubman's Fair Oaks. "The same customer doesn't shop at Pentagon City who shops at Fair Oaks."
Lowy said Westfield and Simon went after the Taubman properties because "it's a very good portfolio" that is worth significantly more than what Taubman stock was selling for at the time. He noted that the bidders considered Taubman's properties so undervalued that they offered to pay 50 percent more than the stock market value of the companies.
Taubman officials raise the competition issue as one of their defenses against the takeover bid, which they insist is still too low. They also cite a survey by Chain Store Age magazine that asked readers whether the deal would be in the best interest of retailers. "No" said 45 percent of those surveyed. Twenty-three percent said "yes," and 32 percent said that it wouldn't matter.
Taubman turned down Simon last fall after the first buyout offer was made. Simon offered $18 a share and later raised the bid to $20. That was not only a 50 percent premium over what Taubman stock was selling for at the time but 30 percent more than it had sold for at any time in the past 10 years, Simon representatives point out.
The hostile bid has frequently been cast as a personal duel between shopping center scions. When his father, Al, retired, after being convicted of price fixing at Sotheby's by conspiring with rival Christie's, Robert Taubman took over management of the family company. Chief executive David Simon and Westfield's Lowy are also second-generation mall magnates.
In depositions taken in a federal lawsuit, young Taubman has accused Simon of both bullying and bargaining against the shareholders.
"He threatened me. He threatened our company. He stated a whole bunch of ultimatums," Robert Taubman said. He said Simon also suggested they cooperate on a side deal "at the damage and destruction of value to the public shareholders."
Simon has denied the allegations, responding that Taubman is the one damaging public shareholders for the benefit of himself and his family.
At a federal court hearing in Detroit on Friday, lawyers for Simon argued that the Taubman company has put up illegal defenses to block the takeover and keep the Taubman family in control of the company.
Simon is challenging a corporate structure that allows the Taubman family, which owns about one-third of the company, to veto any sale even if outside investors want to sell. Simon says 85 percent of public investors offered to sell their shares after it made the $20 offer and is asking the court to throw out the anti-takeover defenses.
Taubman's response is that the corporate structure and anti-takeover defenses protect shareholders from an unfair offer and are permitted by laws in Michigan, where the company is based.
In case the legal challenge does not succeed, the would-be buyers have nominated four candidates for Taubman's board of directors and will try to take control of the firm by electing its team at the next shareholders' meeting.
A decision in the court case is expected in the next month. If it comes down to a proxy fight at the stockholders' meeting, the dispute will drag on for several more months.
A compromise is not out of the question. The Taubman family owns about one-third of the REIT and might be persuaded to take back several of the prime properties and allow Simon and Westfield to have the rest by buying out the public shareholders.
After sliding to around $13 before the bid, Taubman shares immediately jumped to the $16 to $17 range and closed Friday at $17.36 a share.
The price suggests that investors who bet on disputed takeovers are confident enough of the company being sold to pay more for the stock than it was selling for before the bid was made. But they are not confident enough to push the price up to the edge of the $20 offer, which is where it would be if the deal were a sure bet.
Jerry Knight's e-mail address is email@example.com.