The companies said Simon plans to acquire Taubman's stock for $52.50 a share, or a 51% premium to where Taubman shares closed on Friday.
The news sent Taubman's stock soaring up 52% after it resumed trading following a halt for the announcement. Simon shares were up less than 1% in premarket trading. Simon's stock, which has a market value of $45.2 billion, is down 24% over the past 12 months.
Simon, which is known for owning and operating top-tier shopping malls, said it expects the deal to immediately boost its funds from operations, adding at least 3% on annualized basis. Among its properties are Copley Place in Boston, King of Prussia Mall outside Philadelphia and Town Center at Boca Raton in Florida.
Taubman will continue to be managed by Robert Taubman, its chairman, president and CEO. The company owns, manages or leases 26 super-regional shopping centers in the U.S. and Asia, including The Mall at Short Hills in New Jersey and the Beverly Center in Los Angeles.
As part of the deal, the Taubman family is selling one-third of their stake and will continue to own 20% of Taubman Realty Group LP.
The deal, which is expected to close within about six months, comes as mall operators are under increasing pressure to lure shoppers, who more and more favor buying products online or at strip malls where it is easy to dart in and out with purchases. With foot traffic declining at malls, there have been numerous retail bankruptcies and store closings, such by Macy's.
Mall owners have tried to counter these trends by offering shoppers more entertainment and services.
"By joining together, we will enhance the ability of [Taubman Reality] to invest in innovative retail environments that create exciting shopping and entertainment experiences for consumers, immersive opportunities for retailers, and substantial new job prospects for local communities," said Chief Executive Officer and President David Simon in a press release.
The deal is subject to regulatory and shareholder approval. The Taubman family, which owns about 29% of the voting stock, has agreed to vote in favor of the deal. At least two-thirds of the outstanding Taubman voting stock and a majority of the stock not held by the Taubman family must approve the transaction.
This deal is only the latest for Simon. It recently partnered with U.S. mall owner Brookfield Property Partners and Authentic Brands in an attempt to buy Forever 21 for $81 million. The fast fashion retailer filed for Chapter 11 bankruptcy protection in September.
Simon is one of Forever 21′s biggest landlords, with dozens of stores in its malls.