Key Takeover Ruling
Spurs Further Debate

Simon Property Group Inc. and Westfield America Inc. declared victory in a key legal battle against takeover target Taubman Centers Inc. after a federal judge ruled that the Taubman founding family and its allies can't use their controlling 33.6% stake to block a $1.68 billion hostile bid.

Taubman Centers, seizing on language in a footnote of the ruling, which was handed down in federal court in Detroit after the close of markets on May 1, disputed Simon Property Group's interpretation and said the decision invalidated only 3% of the disputed block of shares.

Traders initially sided with Simon, sending Taubman shares up 10% in after-hours activity on views that Simon now has the upper hand in the takeover fight.

The ruling, assuming the Simon/Westfield interpretation is correct, would mean that the two bidders can now call a special shareholder meeting to dismantle the mall company's antitakeover mechanisms.

In a 43-page decision, Judge Victoria Roberts said the Taubman family failed to obtain the consent of "disinterested" shareholders in November when it formed a voting alliance with family friends that boosted its controlling stake to 33.6%, from 30.6%.

The move, which came days after Simon announced its hostile offer, boosted Taubman's voting position only slightly, but had major implications in court. Judge Roberts said the formation of the alliance violated the rights of other shareholders spelled out in a Michigan corporate law. Taubman Centers is based in Bloomfield Hills, Mich., and incorporated in that state.

"It is clear that a shareholder's right to vote his/her shares is to be vigorously protected absent a compelling justification for impeding or otherwise frustrating that right," Judge Roberts wrote.

The decision comes in the sixth month of a takeover battle that has roiled the cloistered world of real-estate investment trusts. Simon, Indianapolis, and Westfield, a unit of Australia's Westfield Holdings Ltd., are offering $20 a share for Taubman Centers, which has vigorously opposed the bid as opportunistic and inadequate.

In February, 85% of Taubman common shareholders voted to support the Simon/Westfield bid. But the Taubman family and certain others own their controlling stake through a type of stock, known as Series B, issued as the result of a 1998 restructuring that was the focus of Simon's legal challenge. The shares gave the family a controlling stake in the REIT.

Simon and Westfield immediately claimed victory. In a statement, the two bidders said they "have always maintained that [Taubman's] public shareholders, and not the Taubman family, should have the right to decide whether to accept our $20 per share cash offer -- and today's ruling is a significant step toward that end."

But Taubman Centers, in its statement, said the ruling was far more limited. Citing the footnote language, Taubman said the court enjoined it from voting only the 3% that had been pledged to the Taubmans in November, meaning the family can vote its original 30.6%. "Although Simon claims that the court enjoined the Taubman family from voting all of its shares, this is simply false," Taubman said.

Judge Roberts ruled that Taubman can vote its block if other shareholders permit it, a prospect that is considered unlikely because most shareholders already expressed support for the Simon/Westfield bid.

Judge Roberts dismissed the bulk of Simon's lawsuit, which included allegations that Taubman Centers' board breached its fiduciary duties by allowing the Series B shares to be issued in 1998. Judge Roberts ruled that Simon didn't have standing to bring the claim since it wasn't a shareholder at the time. But the judge appears to have invalidated the Taubman bloc even though the family and its allies filed Securities and Exchange Commission documents saying they had dissolved the alliance in January after a Simon legal challenge. The judge sharply criticized Taubman Centers' chairman and chief executive, Robert Taubman, for his testimony that the alliance no longer existed.

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