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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------------
SCHEDULE TO/A
TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR 13(e)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 14)
TAUBMAN CENTERS, INC.
(Name of Subject Company (Issuer))
SIMON PROPERTY ACQUISITIONS, INC.
SIMON PROPERTY GROUP, INC.
WESTFIELD AMERICA, INC.
(Names of Filing Persons (Offerors))
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
876664103
(CUSIP Number of Class of Securities)
James M. Barkley, Esq. Peter R. Schwartz, Esq.
Simon Property Group, Inc. Westfield America Inc.
National City Center 11601 Wilshire Boulevard
115 West Washington Street 12th Floor
Suite 15 East Los Angeles, CA 90025
Indianapolis, IN 46024 Telephone: (310) 445-2427
Telephone: (317) 636-1600
(Name, Address and Telephone Numbers of Person
Authorized to Receive Notices and Communications on Behalf of Filing Persons)
--------------------------------------------------
Copies to:
Steven A. Seidman, Esq. Scott V. Simpson, Esq.
Robert B. Stebbins, Esq. Skadden, Arps, Slate, Meagher & Flom LLP
Willkie Farr & Gallagher One Canada Square
787 Seventh Avenue Canary Wharf
New York, New York 10019 London, E14 5DS, England
Telephone: (212) 728-8000 Telephone: (44) 20 7519 7000
--------------------------------------------------
CALCULATION OF FILING FEE
================================================================================
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
- --------------------------------------------------------------------------------
$1,243,725,540 $248,745.11
================================================================================
* Estimated for purposes of calculating the amount of the filing fee only.
Calculated by multiplying $20.00, the per share tender offer price, by
62,186,277 shares of Common Stock, consisting of (i) 52,207,756
outstanding shares of Common Stock, (ii) 2,269 shares of Common Stock
issuable upon conversion of 31,767,066 outstanding shares of Series B
Non-Participating Convertible Preferred Stock, (iii) 7,097,979 shares of
Common Stock issuable upon conversion of outstanding partnership units of
The Taubman Realty Group, Limited Partnership ("TRG") and (iv) 2,878,273
shares of Common Stock issuable upon conversion of outstanding options
(each of which entitles the holder thereof to purchase one partnership
unit of TRG which, in turn, is convertible into one share of Common
Stock), based on the Registrant's Preliminary Proxy Statement on Schedule
14A filed on December 20, 2002, the Registrant's Schedule 14D-9 filed on
December 11, 2002 and the Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 2002.
** The amount of the filing fee calculated in accordance with Regulation
240.0-11 of the Securities Exchange Act of 1934, as amended, equals 1/50th
of one percent of the value of the transaction.
|X| Check the box if any part of the fee is offset as provided by
Rule 0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $248,745.11 Filing Party: Simon Property Group, Inc.; Simon Property
Form or Registration Schedule TO (File No. 005-42862), Acquisitions, Inc.; Westfield America, Inc.
No.: Amendment No. 1 to the Schedule TO Date Filed: December 5, 2002, December 16, 2002 and
and Amendment No. 5 to the January 15, 2003
Schedule TO
| | Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
| | Check the appropriate boxes below to designate any transactions to
which the statement relates.
|X| third-party tender offer subject to Rule 14d-1.
| | issuer tender offer subject to Rule 13e-4.
| | going-private transaction subject to Rule 13e-3.
| | amendment to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment reporting
the results of the tender offer: | |
================================================================================
1170131.1
SCHEDULE TO
This Amendment No. 14 amends and supplements the Tender Offer Statement
on Schedule TO originally filed with the Securities and Exchange Commission (the
"Commission") on December 5, 2002, as amended and supplemented by Amendment No.
1 thereto filed with the Commission on December 16, 2002, by Amendment No. 2
thereto filed with the Commission on December 27, 2002, by Amendment No. 3
thereto filed with the Commission on December 30, 2002, by Amendment No. 4
thereto filed with the Commission on December 31, 2002, by Amendment No. 5
thereto filed with the Commission on January 15, 2003, by Amendment No. 6
thereto filed with the Commission on January 15, 2003, by Amendment No. 7
thereto filed with the Commission January 16, 2003, by Amendment No. 8 thereto
filed with the Commission on January 22, 2003, by Amendment No. 9 thereto filed
with the Commission on January 23, 2003, by Amendment No. 10 thereto filed with
the Commission on February 7, 2003, by Amendment No. 11 thereto filed with the
Commission on February 11, 2003, by Amendment No. 12 thereto filed with the
Commission on February 18, 2003, and by Amendment No. 13 thereto filed with the
Commission on February 21, 2003 (as amended and supplemented, the "Schedule TO")
relating to the offer by Simon Property Acquisitions, Inc., a Delaware
corporation (the "Purchaser") and wholly owned subsidiary of Simon Property
Group, Inc., a Delaware corporation ("SPG Inc."), to purchase all of the
outstanding shares of common stock, par value $.01 per share (the "Shares"), of
Taubman Centers, Inc. (the "Company") at a purchase price of $20.00 per Share,
net to the seller in cash, without interest thereon, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated December 5, 2002
(the "Offer to Purchase"), and the Supplement to the Offer to Purchase, dated
January 15, 2003 (the "Supplement"), and in the related revised Letter of
Transmittal (which, together with any supplements or amendments, collectively
constitute the "Offer"). This Amendment No. 14 to the Schedule TO is being filed
on behalf of the Purchaser, SPG Inc. and Westfield America, Inc. ("WEA").
Capitalized terms used and not defined herein shall have the meanings
assigned to such terms in the Offer to Purchase, the Supplement and the Schedule
TO, as applicable.
The item numbers and responses thereto below are in accordance with the
requirements of Schedule TO.
Item 11. ADDITIONAL INFORMATION.
On January 31, 2003, SPG Inc. and the Purchaser filed a
Memorandum of Law in Support of SPG Plaintiffs' Motion
For a Preliminary Injunction in the United States District
Court for the Eastern District of Michigan (the "Court") (the
"Memorandum of Law"). Pursuant to an order of the Court dated
January 6, 2002, the Memorandum of Law had been filed under seal.
In response to a motion filed by The New York Times, on February 20,
2003, the Court ordered that the Memorandum of Law be unsealed and
that it could be publicly disclosed.
Item 12. EXHIBITS.
(a)(5)(U) Memorandum of Law in Support of SPG Plaintiffs' Motion For a
Preliminary Injunction, filed by Simon Property Group, Inc. and
Simon Property Acquisitions,
Inc. on January 31, 2003 in the United Stated District Court for
the Eastern District of Michigan.
SIGNATURE
After due inquiry and to the best of their knowledge and belief, the
undersigned hereby certify as of February 21, 2003 that the information set
forth in this statement is true, complete and correct.
SIMON PROPERTY GROUP, INC.
By: /s/ JAMES M. BARKLEY
-------------------------------------
Name: James M. Barkley
Title: Secretary and General Counsel
SIMON PROPERTY ACQUISITIONS, INC.
By: /s/ JAMES M. BARKLEY
------------------------------------
Name: James M. Barkley
Title: Secretary and Treasurer
After due inquiry and to the best of its knowledge and belief, the
undersigned hereby certifies as of February 21, 2003 that the information set
forth in this statement is true, complete and correct.
WESTFIELD AMERICA, INC.
By: /s/ PETER R. SCHWARTZ
-------------------------------------
Name: Peter R. Schwartz
Title: Senior Executive Vice President
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
(a)(5)(U) Memorandum of Law in Support of SPG Plaintiffs'
Motion For a Preliminary Injunction, filed by Simon
Property Group, Inc. and Simon Property
Acquisitions, Inc. on January 31, 2003 in the
United Stated District Court for the Eastern
District of Michigan.
EXHIBIT (a)(5)(u)
TO BE FILED UNDER SEAL PURSUANT
TO COURT ORDER DATED 1/6/03
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
- ---------------------------------------- x
SIMON PROPERTY GROUP, INC., and :
SIMON PROPERTY ACQUISITIONS, INC.,
:
Plaintiffs,
: CIVIL ACTION NO. 02-74799
- against -
: JUDGE VICTORIA A. ROBERTS
TAUBMAN CENTERS, INC., A. ALFRED
TAUBMAN, ROBERT S. TAUBMAN, LISA :
A. PAYNE, GRAHAM T. ALLISON, PETER
KARMANOS, JR., WILLIAM S. TAUBMAN, :
ALLAN J. BLOOSTEIN, JEROME A.
CHAZEN, AND S. PARKER GILBERT, :
Defendants. :
- ---------------------------------------- x
MEMORANDUM OF LAW IN SUPPORT OF SPG PLAINTIFFS'
MOTION FOR A PRELIMINARY INJUNCTION
- --------------------------------------------------------------------------------
Carl H. von Ende (P21867)
Todd A. Holleman (P57699)
MILLER, CANFIELD, PADDOCK &
STONE, P.L.C.
150 West Jefferson, Suite 2500
Detroit, Michigan 48226-4415
Telephone: (313) 963-6420
Facsimile: (313) 496-7500
WILLKIE FARR & GALLAGHER
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 728-8000
Facsimile: (212) 728-8111
TABLE OF CONTENTS
PAGE
TABLE OF AUTHORITIES ...................................................... ii
INDEX TO APPENDIX ......................................................... v
STATEMENT OF THE ISSUES PRESENTED.......................................... viii
CONTROLLING OR MOST APPROPRIATE AUTHORITY ................................. ix
INTRODUCTION .............................................................. 1
FACTS ..................................................................... 3
Background ........................................................... 3
The 1998 Restructuring ............................................... 5
The SPG Offer And Defendants' Flat Rejection Of It.................... 13
ARGUMENT .................................................................. 15
I. PLAINTIFFS ARE LIKELY TO SUCCEED ON THE MERITS
OF THEIR BREACH OF FIDUCIARY DUTY AND CONTROL
SHARE ACT CLAIMS ................................................ 15
A. Defendants Have Breached And Continue To Breach
Their Fiduciary Duties...................................... 15
B. The Formation Of A Group With Respect To 33.6% Of
TCI's Voting Shares Precludes Voting Of Those Shares
Without Shareholder Approval ............................... 20
II. SPG WILL SUFFER IRREPARABLE HARM................................. 24
III. DEFENDANTS WILL NOT SUFFER SUBSTANTIAL HARM ..................... 24
IV. AN INJUNCTION WILL SERVE THE PUBLIC INTEREST..................... 25
CONCLUSION................................................................. 25
i
TABLE OF AUTHORITIES
CASES PAGE(S)
AHI METNALL, L.P. V. J.C. NICHOLS CO., 891 F. Supp. 1352 (W.D. Mo. 1995) ................................. 24, 25
ASARCO INC. V. COURT, 611 F. Supp. 468 (D.N.J. 1985)................................................. 17, 24, 25
BEZTAK V. BANK ONE COLUMBUS, N. AM., INC., 811 F. SUPP. 274 (E.D. Mich. 1992) ............................... 17
BREAUD V. AMATO, 657 So. 2d 1337 (La. Ct. App. 1995)......................................................... 20
BUCKHORN, INC. V. ROPAK CORP., 656 F. Supp. 209 (S.D. Ohio 1987) ............................................ 24
CAMPAU V. MCMATH, 185 Mich. App. 724 (Mich. Ct. App. 1990)................................................... 17
CHAMPION PARTS REBUILDERS, INC. V. CORMIER CORP., 661 F. Supp. 825 (N.D. Ill. 1987) ......................... 21
CITIZENS FIRST BANCORP., INC. V. HARRELD, 559 F. Supp. 867 (W.D. Ky. 1982) .................................. 22
CONDEC CORP. V. LUNKENHEIMER CO., 230 A.2d 769 (Del. Ch. 1967) .............................................. 17
CONOCO, INC. V. SEAGRAM CO., 517 F. Supp. 1299 (S.D.N.Y. 1981) .............................................. 17
CROUSE-HINDS V. INTERNORTH, INC., 518 F. Supp. 390 (N.D.N.Y. 1980) .......................................... 19
CRTF CORP. V. FEDERATED DEP'T STORES, INC., 683 F. Supp. 422 (S.D.N.Y. 1988) ................................ 19
DROBBIN V. NICOLET INSTRUMENT CORP., 631 F. Supp. 860 (S.D.N.Y. 1986) ....................................... 17
EDELMAN V. FRUEHAUF CORP., 798 F.2d 882 (6th Cir. 1986) ..................................................... 16
GAFF V. FED. DEPOSIT INS. CORP., 828 F.2d 1145 (6th Cir. 1987)............................................... 15
IN RE GAYLORD CONTAINER CORP. S'HOLDERS LITIG., 747 A.2d 71 (Del. Ch. 1999) ................................. 19
HILTON HOTELS CORP. V. ITT CORP., 978 F. Supp. 1342 (D. Nev. 1997) .......................................... 18
J.L.B. EQUITIES, INC. V. OCWEN FIN. CORP., 131 F. Supp. 2d 544 (S.D.N.Y. 2001) .............................. 12
JEWELCOR INC. V. PEARLMAN, 397 F. Supp. 221 (S.D.N.Y. 1975) ................................................. 21
KAHN V. LYNCH COMMUNICATION SYS., INC., 638 A.2d 1110 (Del. 1994) ........................................... 16
MAGGIORE V. BRADFORD, 310 F.2d 519 (6th Cir. 1962) .......................................................... 16
ii
MARKVA V. HAVEMAN, 168 F. Supp. 2d 695 (E.D. Mich. 2001) .....................................................18
MILLER V. VILL. HILL DEV. CORP., 2001 WL 754050 (Mich. Ct. App. Jul. 3, 2001) ................................15
MINSTAR ACQUIRING CORP. V. AMF, INC., 621 F. Supp. 1252 (S.D.N.Y. 1985) ......................................24
MM COS., INC. V. LIQUID AUDIO, INC., 2003 WL 58969 (Del. Jan. 7, 2003) .......................................17
MORALES V. FREUND, 163 F.3d 763 (2d Cir. 1999)................................................................21
MORALES V. QUINTEL ENTM'T INC., 249 F.3d 115 (2d Cir. 2001) ..................................................21
PACKER V. YAMPOL, 1986 WL 4748 (Del. Ch. Apr. 18, 1986) ..................................................17, 19
PHILLIPS V. INSITUFORM OF N. Am., Civ. No. 9173, 1987 WL 16285
(Del. Ch. Aug. 27, 1987)..................................................................................17
PLAZA SEC. CO. V. FRUEHAUF CORP., 643 F. Supp. 1535 (E.D. Mich. 1986) .................................15, 15,16
SCHAFFER V. CC INV., LDC, 2002 WL 31869391 (S.D.N.Y. Dec. 20, 2002) ..........................................20
SCHNELL V. CHRIS-CRAFT INDUS., 285 A.2d 437 (Del. 1971) ......................................................17
SEILON, INC. V. LAMB, No. C 83-314,1983 WL 1354 (N.D. Ohio July 27, 1983) ....................................21
SIERRA CLUB V. MORTON, 405 U.S. 727 (1972) ...................................................................18
SIX CLINICS HOLDING CORP., II V. CAFCOMP SYS., INC., 119 F.3d 393 (6th Cir. 1997) ............................15
TEXASGULF, INC. V. CANADA DEV. CORP., 366 F. Supp. 374 (S.D. Tex. 1973) ......................................24
TORCHMARK CORP. V. BIXBY, 708 F. Supp. 1070 (W.D. Mo. 1988) ..................................................19
UNOCAL CORP. V. MESA PETROLEUM CO., 493 A.2d 946 (Del. 1985) .................................................16
UNITRIN, INC. V. AM. GEN. CORP., 651 A.2d 1361 (Del. 1995) ...................................................16
WELLMAN V. DICKINSON, 682 F.2d 355 (2d Cir. 1982) ............................................................21
STATUTES
MCL ss. ss. 450.1790 ET SEQ.................................................................................2,23
IND. CODE ss. 23-1-42.........................................................................................23
17 C.F.R. ss. 240.13d-5(b)(1) ................................................................................24
iii
OTHER AUTHORITIES
David M. Einhorn, Adam O. Emmerich and Robin Panovka, REIT M&A
TRANSACTIONS - PECULIARITIES AND COMPLICATION, 55 BUS. Lawyer 693 (Feb. 2000) ..............................4
iv
INDEX TO APPENDIX
VOLUME I: PUBLIC DOCUMENTS
PAGE
SPG Offer to Purchase for Cash, dated Dec. 5, 2002.......................................Al
SPG and Westfield Supplement to the Offer to Purchase, dated Jan. 15, 2003 .............A56
TCI Schedule 14D-9/A Amendment No. 3, dated Dec. 20, 2002...............................A95
TCI Common Stock Prospectus, dated Nov. 20, 1992 (Defendants' Exhibit 7) ..............A158
TCI Articles of Incorporation, dated Aug. 9, 2000 .....................................A348
TCI Second Amendment and Restatement of Agreement of
Limited Partnership, dated Sept. 30, 1998 .........................................A383
TCI Form 8-K, dated Aug. 18, 1998 (Payne Exhibit 1)....................................A448
TCI Form 8-K, dated Sept. 30, 1998 (Payne Exhibit 2)...................................A468
TCI Schedule 14D-9, dated December 11, 2002 (Gilbert Exhibit 10) ......................A486
Press Release, Taubman Centers, Inc., dated Jan. 21, 2003..............................A512
TCI Schedule 13D/A, dated Nov. 14, 2002................................................A516
Press Release, Taubman Centers, Inc., dated Dec. 17, 2002 .............................A570
TCI Schedule 13D/A, dated Jan. 28, 2003................................................A573
v
VOLUME II: DEPOSITION EXHIBITS/DOCUMENTS
Page
NOVA Restructuring and Recapitalization Plan Goldman Sachs as Advisor
to the NOVA Family (Rosenberg Exhibit 7).................................................................A600
Project NOVA Goldman Sachs Value Added (Rosenberg Exhibit 8).................................................A602
Memorandum to IBD Innovation Award Committee, dated Nov. 18, 1998
(Rosenberg Exhibit 10) ..................................................................................A608
Goldman Sachs Handwritten Notes (Bloostein Exhibit 3) .......................................................A610
Separation and Relative Value Adjustment Agreement, dated Aug. 17, 1998......................................A775
REIT Flowchart (Bloostein Exhibit 2).........................................................................A845
Morgan Stanley Handwritten Notes (Niehaus Exhibit 3).........................................................A846
Letter from Morgan Stanley to the Taubman Partnership Committee and Board of
Directors, dated Aug. 17, 1998 (Niehaus Exhibit 8) ......................................................A847
Minutes of Meeting of the Partnership Committee of TCI, dated June 24, 1998
(Gilbert Exhibit 3) .....................................................................................A850
Project NOVA, Preliminary Transaction Term Sheet Unit Redemption Transaction,
revised June 29, 1998 ...................................................................................A854
1998 Draft Press Releases (Taubman Exhibit 12) ..............................................................A861
TCI Ownership Structure, May 2001 Proxy (Rosenberg Exhibit 5)................................................A912
Letter from Goldman Sachs to R. Taubman, dated Oct. 25, 2002 (R. Taubman Exhibit 9) .........................A914
Minutes of a Special Meeting of the Board of Directors of TCI,
dated Oct. 28, 2002 (Rosenberg Exhibit 1)................................................................A923
Voting Agreements, dated Nov. 14, 2002 (R. Taubman Exhibit 13)...............................................A928
Letter from D. Simon to R. Taubman, dated Oct. 22, 2002 (Bloostein Exhibit 4)................................A935
vi
VOLUME III: DEPOSITION TESTIMONY/CASES & AUTHORITIES
Page
Excerpts from the Deposition Transcript of Allan J. Bloostein, taken Jan. 14, 2003 ........................A938
Excerpts from the Deposition Transcript of Simon Parker Gilbert, taken Jan. 9, 2003 .......................A984
Excerpts from the Deposition Transcript of G. William Miller, taken Jan. 22, 2003 .........................A1030
Excerpts from the Deposition Transcript of Lisa Payne, taken Jan. 17, 2003 ................................A1037
Excerpts from the Deposition Transcript of Christopher J. Niehaus, taken Jan. 17, 2003 ....................A1060
Excerpts from the Deposition Transcript of Adam Rosenberg, taken Jan. 24, 2003 ............................A1087
Excerpts from the Deposition Transcript of David Simon, taken Jan. 24, 2003 ...............................Al119
Excerpts from the Deposition Transcript of Robert Taubman, taken January 16, 2003 .........................A1124
MICH. COMP LAWS ss. ss. 450.1790-1799 .....................................................................Al163
DAVID M. EINHORN ET AL, REIT M&A TRANSACTIONS-PECULIARITIES AND
COMPLICATIONS, 55 BUS. LAW. (Feb. 2000) ...............................................................Al172
MILLER V. VILL. HILL DEV. CORP., No. 220297, 2001 WL 754050
(Mich. Ct. App. July 3, 2001) .........................................................................A1214
MM CO., INC. V. LIQUID AUDIO, INC., NO. 606, 2002, 2003 WL 58969
(Del. Jan. 7, 2003) ...................................................................................A1217
PACKER V. YAMPOL, 1986 WL 4748 (Del. Ch. 1986) ............................................................A1228
PHILLIPS V. INSITUFORM OF N. AM., INC., CIV. A. No. 9173, 1987 WL 16285
(Del. Ch. 1987) .......................................................................................A1240
SCHAFFER EX REL. LASERSIGHT INC. V. CC INV., LDC, No. 99 Civ. 2821 (VM), 2002 WL
31869391 (S.D.N.Y. Dec. 20, 2002) .....................................................................A1249
SEILON, INC. V. LAMB, NO. C 83-314,1983 WL 1354 (N.D. Ohio July 27, 1983) .................................A1257
vii
STATEMENT OF THE ISSUES PRESENTED
1. Whether the defendants breached and continue to breach their fiduciary
duties to the public shareholders of Taubman Centers, Inc. by issuing a new
series of voting preferred stock called the "Series B Preferred Stock" (the
"Series B") to the Taubman family without fair consideration and for an improper
purpose in 1998 and by continuing to permit the Taubman family to vote its
Series B shares?
The plaintiffs' answer: yes.
2. Whether the Taubman family has formed a group within the meaning of the
Michigan Control Share Act for the purpose of voting against the SPG/Westfield
offer such that the group's shares may not be voted without shareholder
approval?
The plaintiffs' answer: yes.
3. Whether the Taubman family should be preliminarily enjoined from voting
the Series B shares?
The plaintiffs' answer: yes.
viii
CONTROLLING OR MOST APPROPRIATE AUTHORITY
Mich. Comp. Laws ss.ss. 450.1791-1799
15 U.S.C. ss. 78m(d)
17 C.F.R. ss. 240.13d-5(b)(1)
ASARCO INC. V. COURT, 611 F. Supp. 468 (D.N.J. 1985)
BUCKHORN, INC. V. ROPAK CORP., 656 F. Supp. 209 (S.D. Ohio 1987)
CAMPAU V. MCMATH, 185 Mich. App. 724 (Mich. Ct. App. 1990)
HILTON HOTELS CORP. V. ITT CORP., 978 F. Supp. 1342 (D. Nev. 1997)
MM COS., INC. V. LIQUID AUDIO, INC., 2003 WL 58969 (Del. Jan. 7, 2003)
MORALES V. QUINTEL ENTM'T, INC., 249 F.3d 115 (2d Cir. 2001)
SEILON, INC. V. LAMB, 1983 WL 1354 (N.D. Ohio July 27, 1983)
SIX CLINICS HOLDING CORP. V. CAFCOMP SYS., INC., 119 F.3d 393 (6th Cir. 1997)
UNOCAL CORP. V. MESA PETROLEUM CO., 493 A.2d 946 (Del. 1985)
ix
INTRODUCTION
------------
By this motion, the SPG plaintiffs seek relief to allow the public
shareholders of Taubman Centers, Inc. ("TCI" or the "Company") to decide for
themselves whether to accept a $20 per share all cash offer for their shares,
representing a 50% cash premium over the Company's stock price before SPG
entered the scene. Although the Taubman family owns only a 1% economic interest
in TCI, while the public shareholders own the remaining 99%, TCI's public
shareholders cannot take advantage of this premium offer by SPG/Westfield'
because the Taubman group is adamantly opposed to the offer and intends to vote
against an amendment to the Company's Articles of Incorporation that would
enable the offer to be completed. Thus, if the Taubman group is allowed to vote
its blocking position, it will effectively be able to veto the offer and the
economic benefits the offer has created for the shareholders will disappear.
SPG asserts two principal grounds for the preliminary injunctive relief it
seeks. First, the issuance of a new series of voting preferred stock called the
"Series B Preferred Stock" (the "Series B") to the Taubman family in 1998
constituted a breach of fiduciary duty by the Taubman Board of Directors because
it gave effective control of the Company to the Taubman family for no fair
consideration and without serving any valid corporate objective. Acting to
"avoid a shareholder vote at all costs," the Taubman family knowingly took
advantage of a contemporaneous transaction (the "GM Exchange") to seize
effective control of TCI and effect a fundamental reallocation of power from the
public to itself. By creating and allowing the Series B to be used by the family
to veto offers it does not want, the Board and Taubman family have
- --------------
1 Simon Property Group, Inc. and Simon Property Acquisitions, Inc. ("SPG") and
Westfield America, Inc. ("Westfield"). SEE SPG Appendix ("A") at A1 (Dec. 5
offer); A56 (Jan. 15 offer). SPG's three-volume Appendix is consecutively
numbered from A1-A1272.
breached and are continuing to breach their fiduciary duties to the public
shareholders. Defendants' continuing rejection of the tender offer on the
pretense that it is "inadequate," when the real reason is the Taubman family's
adamant opposition, is but a further manifestation of their breach of duty.
Second, the voting of the Series B by the Taubman family should also be
enjoined because of the formation of a group by Robert Taubman, the Taubman
family and other friends of the family to vote their shares for the admitted
purpose of thwarting the SPG/Westfield offer. The accumulation of this
controlling block of voting shares by the Taubman group, acting in concert,
constitutes a "control share acquisition" within the meaning of MCL ss. 450.1790
ET SEQ. (the "Control Share Act") (A1163). Unless and until TCI's shareholders
vote to confer voting rights on the group shares, the group's 33.6% controlling
voting block cannot validly be voted.
Plaintiffs will suffer irreparable harm if the injunctive relief sought is
not granted. The Taubman board has repeatedly stated that, in light of the
announced intention of the Taubman group to vote against the offer, it would be
(in the Company's words) a "waste of time" for shareholders to tender their
shares or give their proxies for an upcoming special shareholder meeting to
amend the charter because "nothing can be achieved at the meeting."2 If the
Taubman group's improperly acquired voting power is not enjoined, shareholders
will not know whether, when or how they will have an opportunity to avail
themselves of an advantageous all cash offer, SPG will lose the unique
opportunity to complete its tender offer, and defendants will have succeeded in
thwarting the public shareholders' right to vote to remove the impediments to
the tender offer. In an era in which abuse of public shareholders by corporate
insiders is all too
- ---------------
2 SEE A95, 120, 125.
-2-
common, judicial intervention in this case has become necessary to prevent the
trampling of the shareholders' rights by the self-interested Taubman family.
FACTS
BACKGROUND
TCI was taken public by the Taubman family in 1992. SEE A158. The new
publicly-traded REIT was owned (then as today) approximately 99% by public
shareholders, including at that time the General Motors Pension Trusts ("GM"),
which held about 20% of the common stock. A171. TCI, in turn, conducted its
regional shopping center operations (then as today) through a limited
partnership known as the Taubman Realty Group Limited Partnership ("TRG"), of
which TCI is the managing general partner. A165,172. The Taubman family owned
approximately 23% of the partnership units of TRG, while GM and TCI owned the
remaining majority. A171.
TRG was controlled by a 13-member Partnership Committee, on which the
Taubman family held a minority of four seats, GM held four seats and TCI held
five seats. A941-43; A845. TCI, in turn, was governed by a Board of 10 members
(later 11), of whom two were affiliated with GM, four were affiliated with the
Taubman family and the rest were designated as "Independent Directors." A172;
A939-41,943. Decisions by the Partnership Committee, on behalf of TRG, and the
Board, on behalf of TCI, were governed by a majority vote. A172, 250, 258. Thus,
prior to 1998, the Taubman family did not have a blocking position on either the
TCI Board or the TRG Partnership Committee; it had an insignificant economic and
voting interest in the public REIT; and it held a minority of the TRG
partnership units. A954-57, 961; A1008; A606.
-3-
TCI and TRG were (and are) separate legal entities. The two-tiered
ownership and governance structure, commonly known as an "UPREIT" structure, was
put in place by the family for tax advantages. A973-74; A985, 1008. However, as
explained in an article by the family's own counsel, Wachtell Lipton, "The tax
advantages of UPREITS do not come without costs. The UPREIT structure can create
complex conflicts of interest between the directors of the REIT and the limited
partners which are often heightened in the context of change of control
transactions . . . . "3
TCI's articles make it impossible for anyone to acquire more than 9.9% of
the Company's voting power (the "Excess Share Provision"). A348, 372, 374.
Unless the provision were lifted, no one would purchase shares of TCI in a
tender offer because the shares would have no voting rights. A978-79; A374.
However, unlike the typical REIT excess share provision, the TCI Excess Share
Provision is not waivable by the board but can only be amended by a two-thirds
vote of the Company's shareholders. A369-77.4
Despite the restrictions imposed by the Excess Share Provision, prior to
1998 TCI could have been sold to a third party even if the family were opposed.
A968-69; A 1041-43; A 1017-18. The independent directors and the two GM
directors constituted a majority of the REIT board and could have approved such
a sale. A1041-43. The public shareholders, who held 99% of the
- ---------------
3 David M. Einhorn, Adam O. Emmerich and Robin Panovka, REIT M&A TRANSACTIONS -
PECULIARITIES AND COMPLICATION, 55 Bus. Lawyer 693, 695-96, 716-720 (Feb. 2000)
(A1172).
4 While REITS commonly utilize excess share provisions to preserve the REIT's
tax status, they typically grant the board of directors the discretion to waive
the limitation with respect to particular acquirors who would not jeopardize the
target REIT's tax status. SEE REIT M&A TRANSACTIONS at 698 (A1177). Because an
acquisition of a REIT by another REIT or corporation (as opposed to an
individual) does not threaten the target REIT's tax status, ID., the
SPGIWestfield offer poses no threat to TCI's status as a REIT.
-4-
voting power in the REIT, could have amended the charter to remove the Excess
Share Provision in order to receive an advantageous offer and the family alone
would not have been able to block such an amendment. A1044-45.
THE 1998 RESTRUCTURING
In 1998, this entire structure was drastically changed, and corporate power
at the REIT level fundamentally reallocated to the family, by the family's
taking advantage of a restructuring that ultimately became the GM Exchange.
Prompted by TCI's lagging financial performance, GM sought to reduce the size of
its investment. A944-47; A987-88. The parties also allegedly wanted to
"simplify" and "improve" the two-tiered governance structure in some unspecified
manner. A950; A995-96.
But the Taubman family had objectives of its own. Recognizing that "the
Family's interests and the public's interests (i.e., the Company) will diverge"
(A602), the family hired its own advisors to work closely with the strategic
planning committee formed to come up with a restructuring proposal. The family's
advisors -- the investment banking firm of Goldman Sachs and the law firm of
Wachtell Lipton -- "were free to be biased advocates on behalf of the [Taubman]
family" against the interests of other stakeholders. A600.5
One issue was critical: the Taubman family was "firm" that it would
"vigorously oppose ANY proposal which includes a shareholder vote." A603
(emphasis added). Goldman advised that
- -------------
5 The planning committee was made up of Alfred Taubman, two GM representatives
and two independent directors, Parker Gilbert and Jerome Chazen. A989-90; A1061.
Even though Robert Taubman was not on the planning committee, the committee
worked "closely" with "Bobby [Taubman] and his people" including Goldman and
Wachtell. A991-93, 994. SEE ALSO A1082-83; A1149.
-5-
a "shareholder vote must be avoided at all costs." A607. Avoiding a shareholder
vote was described as "key." A613.
One reason for avoiding a shareholder vote was the family's fear that it
would "put the company in play," i.e., lead to "interlopers" making a bid that
could result in the Company being sold. A600; A603; A1050-52; A1108-10. The
"Family and Goldman Sachs stood united in not wanting to put [the Company] `in
play.'" A600. This was not just a theoretical threat, but a real one: in the
course of the restructuring, another REIT, known as Rouse, sent a letter
proposing to acquire the REIT's stock.6 A1066-71. The family opposed the
proposal and the board of the REIT elected not to pursue the matter. A1001-03;
A1066-71.
While the planning committee's independent members and the committee's
financial advisor, Morgan Stanley, "always insisted that a REIT shareholder vote
is necessary" (A603; A1073-74), and while GM also had a preference for a
shareholder vote (A1064-65), the family remained adamantly opposed to any such
suggestion. A617 (Goldman notes) ("Bobby [Taubman] told Alan7: Need certainty --
NO VOTE") (emphasis in original).
Incredibly, each and every defendant who testified in this case
categorically denied that the Taubman family expressed any opposition to the
concept of a shareholder vote. SEE A1137-38 (R. Taubman) ("Absolutely not;" "It
was not our position."); A1139-40 (R. Taubman denied ever saying he wanted to
avoid shareholder vote because it would put company in play); A951, 952-53
(Bloostein) (family opposition to shareholder vote "never came up"); A999-1000,
1014-15 (Gilbert) ("No, there was no indication of that"); A1053-54 (Payne)
("No").
- ----------------
6 Defendants have refused to produce this letter despite a discovery request.
7 Either Allen Reed of GM or TCI director Allan Bloostein. A1107, 1111-12.
-6-
This testimony is completely belied by painstakingly detailed
contemporaneous notes and memoranda authored by a member of the Goldman Sachs
team who worked on the restructuring. A610-773; A600; A602; A1105-06;
1113-1165.8 SEE, E.G., A613 ("Key is SH [shareholder] vote;" "We won't
endorse plan including interlopers/SH [shareholder] vote"); A614 ("Bobby will
tell Alan: . . . we'll present structure that works -- no SH vote"); A603
("Bobby should remain firm that Family will vigorously oppose any proposal
which includes a shareholder vote"); A628 ("Bobby: status quo is not
acceptable . . . [arrow] SH vote course w/risks (?) AND Co. WILL be put in
play") (emphasis in original); A607 ("shareholder vote must be avoided at all
costs"). These notes and memoranda are corroborated by the testimony of the
lead Morgan Stanley investment banker on the deal, Chris Niehaus, who
confirmed that the Taubman family "preferred not to have a shareholder vote"
and "felt somewhat strongly about that position." A1062-63, 1072-73, 1084.
The family's position prevailed. An earlier proposal for a spin-off of
malls into a separately-traded development company "for a time appeared to be
the most promising" alternative, but it would have required a shareholder vote
and was discarded. A851; A600; A603.9 Another alternative -- the "Family's
preferred structure" -- was then agreed upon and
- ---------------
8 The Goldman investment banker who authored these materials, Adam Rosenberg,
had joined Goldman in 1998 after practicing law for four years at the New York
law firm of Skadden Arps. A1088. He played a substantive role in the 1998
restructuring, attending numerous meetings and interacting with the Company's
Chief Financial Officer, Lisa Payne in the collection and review of financial
data. A1099, 1101-04. Mr. Rosenberg, who has since been promoted, is now working
on the Goldman team that is representing the Company in its defense against the
SPG offer. He was one of the Goldman bankers who made a presentation at the
Board of Directors meeting on October 28, 2002 to consider the SPG offer.
A1089-96; A923, 925-26.
9 The Goldman notes cast considerable doubt on the alleged "independence" of
certain directors. Goldman described Claude Ballard (a former Goldman partner,
A986; A1075) as "WAY on our
-7-
ultimately implemented; it involved a negotiated separation and redemption of
GM's partnership units in exchange for ten mall properties ("malls for
units"). A602; A1097-99. The parties were advised that a shareholder vote on
this exchange was not required and certainly was "not recommended." A852.
Even after agreement on the basic "malls for units" structure, the family's
advisors continued to insist that there be no shareholder vote. SEE A846 ("GS
Objection --Shareholder Vote [arrow] Will put company up for sale"). 10
Goldman, which was paid $10 million by the family for its efforts,
A1133-1134, touted the ultimate structure as "the Goldman proposed plan"
which it "helped the family sell." A608. In the end, a "public shareholder
vote [was] avoided." A602.
The GM Exchange resulted in achieving other important family goals. The
transaction "was in fact driven by the strong desire, by the [Taubman] family"
to achieve "greater relative ownership and control" (A600), through a
"substantial improvement in [the] Family's governance rights." A602. PRIOR to
the GM Exchange the family had "NO ABILITY to block transactions at either REIT
or OP [operating partnership] level." A606 (emphasis added). Goldman and
Wachtell's advice was to "take advantage" of the restructuring "to implement [a]
governance package more favorable to [the] Family." ID. AFTER the GM Exchange
there were "significantly better governance rights for Family than previously
existed", including:
- ---------------
side" (emphasis in original) and Graham Allison as "aligned with Dad [Albert
Taubman]". Directors Chazen and Gilbert were "with us except SH vote." A628.
10 These notes, produced from Morgan Stanley's files, are from a meeting on July
18, 1998, well after the development company proposal had been rejected and the
basic "malls for units" structure had been agreed upon at the June 24 meeting.
A850; A1146-47; A996-97. Thus, contrary to defendants' suggestion that the
shareholder vote issue was limited to the development company proposal, these
notes confirm that "avoiding a shareholder vote" remained a constant goal of the
family throughout the restructuring process.
-8-
o "4 out of 9 REIT Board seats" [compared with 4 of 11 previously];
o "'Flow-through'" voting rights -- voting power of units at REIT level"
[through the issuance of the Series B]
o "2/3 majority vote required for merger at REIT level (Family to own
29%, [other limited partners] to own 9%)"
o "Blocking rights at OP level for extraordinary transactions; 50% LP
consent required" [SEE A383, 417; A393]
A606. Although the Taubman family's minimal economic ownership of the REIT was
unaffected by the GM Exchange, as a result of obtaining the Series B (for
$38,000) they obtained approximately 30 percent voting power in the REIT and a
blocking position. A965-66. The Series B gave the family a veto over a sale of
the company for the first time (A972), and an effective veto over any lifting of
the Excess Share Provision. A976-77; A1044-45. SEE A1158 (R. Taubman)
("Practically speaking our 30 percent rough position I think was more than
sufficient to have a sale turned down."). As result of the Series B, the board
no longer has the effective power to effect a sale of the company even for a
proposal that it favors. A982-83.
The REIT Board was not told in 1998 by any advisors that one effect of
giving the Taubman family the Series B was to give them an effective veto over
any sale of the REIT. A970. There was no discussion by the board of this impact.
A975; A1148; A1079-80. Director Bloostein admitted he never even considered
this fact although he now acknowledges it might have been important to his
decision. A970-71. And of course shareholders were not allowed to vote on the
matter.
GM abstained from voting on the final transaction. A1004. GM's lawyer,
Dennis Block, explained that GM would "abstain on governance" because
"governance is [a] real problem for
-9-
[the] REIT." A761; SEE A859 (GM notes) ("We won't vote on it [governance] - no
finger prints on it").
Morgan Stanley, the planning committee's advisors, "was merely `brokering'
the overall deal" and provided a "fairness opinion" to "make everyone happy."
A600. The fairness opinion did not mention the Series B. A1077-78; A1011-12. The
opinion addressed the fairness, "from a financial point of view," of the
"Redemption," a defined term that did not include the Series B,11 and Morgan
Stanley performed no financial analysis of the Series B. A1076. The Series B was
issued for a mere $38,400. SEE A1010. The Board never discussed the value of the
Series B and the voting rights it conferred on the family or obtained an
appraisal of such value. A1013.
The public announcement of the GM Exchange on August 18, 1998 omitted any
mention of the Series B or the blocking rights that were created for the Taubman
family. A448-52. A Goldman banker advised on the press release as follows:
"don't mention governance -- can of worms." A739; A1117-18. A draft of the
press release left a spot for discussion of "Taubman Family vote/other
governance issues" (A903), but the actual release steered clear of the topic
other than to claim that governance had been "simplified."
The first mention of the Series B came in an SEC filing on October 15,
1998, in which TCI cryptically (and misleadingly) stated that it became
"obligated" to issue the Series B in connection with the GM Exchange. A468-69.
Defendants' witnesses could not explain the source of this alleged "obligation."
SEE, E.G., A1057; A1006-07; A1085-86. In fact there was no such "obligation."
- --------------
11 A847-79. The terms and conditions of the "Redemption" were set forth in the
GM Separation Agreement, which does not mention the Series B. A775.
-10-
As admitted by director Gilbert, there was no requirement that the
Series B be issued. A1006-07. GM never insisted on issuance of the Series B
(A1005-06; A1100), and the separation agreement between GM and TRG did not
even mention the Series B, much less require it as a term or condition. A775.
The board was led to believe that the family's consent was necessary to
approve the GM Exchange, and that this was some sort of "package deal" that
required issuance of the Series B. That was not true. The GM Exchange,
including all the material benefits, could have been accomplished without the
Series B -- indeed, even without the family's consent or any changes in
governance at all. A958-59, 980, 981 (Bloostein); A1006-07 (Gilbert) ("pure
speculation" that family would not have done the deal without the Series B);
SEE ALSO A1081 (Niehaus). For the SEC filing to call the Series B an
"obligation" of the Company was grossly misleading.
Nor did the October 1998 8-K explain that the family was obtaining a 30%
vote and blocking position through the Series B. Payne justified this omission
on the ground that "if somebody read it and didn't understand it, they would
have called" and she "never got a phone call." A1058-59. While the possibility
of issuing preferred stock had earlier been disclosed, 12 the fact remains that
the Company did not clearly and forthrightly tell the shareholders in 1998 what
it had done to them.
- -------------
12 Defendants make much of the authorization in 1996 for the Board to issue, at
some future date, preferred stock "without seeking further shareholder
approval." But that advance authorization did not validate in advance the
improper purpose for which the Series B was ultimately issued. A1033-36 (G.
William Miller). Furthermore, the disclosure in 1996 stated that the Company
anticipated using the preferred stock and its "net cash proceeds" for corporate
acquisitions -- a typical use of so-called "blank" or "bucket preferred" stock.
SEE A1122-23 (David Simon). Neither this disclosure, nor any other disclosure
prior to 1998, put shareholders on notice that the family would use preferred
stock to achieve a blocking position while disenfranchising the public
shareholders.
-11-
The Board never even considered any less drastic alternatives to issuance
of the Series B that would have simplified governance without giving the family
a blocking position. The advisors never proposed a structure that did not
involve giving the Taubman family the Series B. A981-81a; A1009-10. Nor was
the option of simply exchanging the GM units for the 10 shopping centers without
making any governance changes ever considered. A959-60.
While defendants tout the fact that the REIT went from a minority to
majority owner of TRG as a result of the GM Exchange, that would have happened
had the exchange been done without any changes in governance. A1048-49.13
Similarly, the defendants' assertion that the GM Exchange moved all key
decision-making from the Partnership Committee to the REIT Board level ignores
the fact that prior to the exchange, the REIT Board had the decision making
authority regarding matters fundamental to the REIT's public shareholders. It
was the REIT Board -- not the Partnership Committee -- that was responsible for
assessing proposals to acquire the REIT (A1007-08); it was the REIT Board that
made the determination to reject the Rouse offer (A1140-41); it was the REIT
Board that had to and did approve the GM Exchange on behalf of the public
shareholders and it was the REIT Board that was required to, and did,
- ----------------
13 Similarly, while defendants contend that the GM Exchange allowed the REIT
and partnership to issue one set of consolidated financial statements, no one
ever discussed whether that goal could have been accomplished if the GM
Exchange had been done alone without any other changes in corporate
governance. A1046-48. In fact, the REIT still would have been able to
consolidate its financial statements with the partnership because it would
have had majority equity ownership of TRG. SEE J.L.B. EQUITIES, INC. V. OCWEN
FIN. CORP., 131 F. Supp. 2d 544, 550 (S.D.N.Y. 2001). Defendants' additional
contention that as part of the deal the family gave up favorable termination
provisions under the management agreement is likewise misguided. The changes
to the management agreement were not significant "concessions" by the Taubman
family because TCI has the "economic ownership" of the management company and
the Taubman family does not earn any money from the management company.
A1055-56 (Payne); SEE ALSO A1153-55 (R. Taubman) (management contract is of
"nominal" value).
-12-
authorize the issuance by the REIT of the Series B to the family. A1142-44,
1145. Defendants' effort to portray the REIT Board as an insignificant body must
fail.
Finally, the defendants' refrain that the Series B aligned the voting and
economic interests in the "enterprise" and guaranteed "one unit, one share, one
vote" is an empty slogan and inaccurate at that. There is no such entity as the
"enterprise." TRG and the Company are two separate legal entities (SEE, E.G.,
A912-13), and the Taubman family reaps considerable tax benefits from that
separate legal structure. The fact remains that as a direct result of the Series
B, the family holds 1% of the economic interest yet more than 30% of the voting
power in the public REIT. As director Gilbert tellingly testified, "I don't
think it is good business practice to let 30 percent of the interest decide what
happens to the whole." A998. Much less should a 1% interest holder have that
right.
THE SPG OFFER AND DEFENDANTS' FLAT REJECTION OF IT
Immediately upon receiving an unsolicited proposal from SPG in October
2002, Robert Taubman hired the FAMILY'S two trusted advisors from the 1998 GM
Exchange -- Goldman and Wachtell -- to advise on behalf of the PUBLIC COMPANY
with respect to the offer. A1019-23; A1151-52.14 Both Goldman and Wachtell,
who had performed work on the family's behalf prior to 1998, continued to do so
subsequent to 1998 and prior to the SPG offer (E.G., a Goldman "anti-raid
analysis" prepared in 2001, SEE A912), and they continue to perform work
separately for the family today. A1135-36,1150-51. Goldman's current engagement
by TCI on the SPG offer
- ---------------
14 Robert Taubman testified that he hired Goldman and Wachtell "in consultation
with my board" prior to the October 28, 2002 board meeting. A1151. Parker
Gilbert testified, however, that when Taubman called him before the board
meeting "he told me who he had hired" and that it was Goldman and Wachtell.
A1022-23. Director Bloostein was not even aware that Goldman had advised the
family in the 1998 GM Exchange. A948-49.
-13-
allows it to earn a "success fee" in which success is defined as the Company not
being taken over. A1027-29; A914.
At an October 28, 2002 meeting the Board "received advice from Mr. Taubman
that the Taubman family had no interest in pursuing a sale of the Company and
intended to use its significant stake in the Company to oppose the proposed
transaction it if were put to a vote." A486, 500. There was no discussion of
whether the $17.50 price was financially inadequate. A1024-26. The Board
declared that the Company was "not for sale" and that discussions as to SPG's
proposal would be "unproductive." A500. Thus continues the pattern from 1998 of
preventing any third party bids, and not giving shareholders any choice in the
matter.
On November 13, 2002 the Company announced that the Board had rejected
SPG's proposal and that, in light of the family's position that it was
"categorically opposed to the sale of the Company," any efforts to purchase TCI
would be "unproductive." A502. One day later, Robert Taubman entered into the
Voting Agreements described more fully in the Court's Order of January 22, 2003.
On November 15 the family filed a Schedule 13D with the SEC stating that the
Voting Agreements were entered into "for the purposes of preventing an
unsolicited takeover of the Company." A516, 543. As the 13D stated, "Robert S.
Taubman together with the Taubman Family controls 33.6% of the vote of the
capital stock of the Company" (ID.), which Taubman has testified makes it
"impossible" for someone to achieve a two-thirds vote to amend the articles over
the family's opposition. A1158. SEE A962-64, 966-67 (Bloostein) (SPG offer is
"futile" because 2/3 of shareholders must approve a sale and the family holds
over 33%).
On December 5, 2002 SPG made its tender offer at $18 per share. The Board
rejected this offer as well as the increased SPG/Westfield offer of $20. On
January 22, 2003 Robert
-14-
Taubman said "the board's position remains clear -- the company is not for
sale." A512. Taubman refused to testify, however, as to what an adequate price
would be. A1131-32.
ARGUMENT
The factors to be considered in deciding whether to grant a preliminary
injunction are well established: "(1) the likelihood that the party seeking the
preliminary injunction will succeed on the merits of the claim; (2) whether the
party seeking the injunction will suffer irreparable harm without the grant of
the extraordinary relief; (3) the probability that granting the injunction will
cause substantial harm to others; and (4) whether the public interest is
advanced by the issuance of the injunction." SIX CLINICS HOLDING CORP., II V.
CAFCOMP SYS., INC., 119 F.3d 393, 400 (6th Cir. 1997) (citation omitted). The
four considerations are factors to be balanced, not prerequisites that must be
met, and no single factor is determinative. ID. at 400. As shown below, all four
of these factors are met by plaintiffs.
I. PLAINTIFFS ARE LIKELY TO SUCCEED ON THE MERITS OF THEIR BREACH OF FIDUCIARY
DUTY AND CONTROL SHARE ACT CLAIMS
A. DEFENDANTS HAVE BREACHED AND CONTINUE TO BREACH THEIR FIDUCIARY
DUTIES.
Under Michigan law, directors and officers of a corporation owe a fiduciary
duty to the corporation's shareholders. SEE GAFF V. FED. DEPOSIT INS. CORP., 828
F.2d 1145, 1151 (6th Cir. 1987); MILLER V. VILL. HILL DEV. CORP., 2001 WL
754050, at *2 (Mich. Ct. App. Jul. 3, 2001) (A1214).15 Directors are required to
act on the shareholders' behalf, in good faith, "with the degree of diligence,
care and skill ... which an ordinarily prudent and loyal person would
- -------------
15 In the absence of Michigan law on a question of corporate law, Michigan
courts generally refer to Delaware law. PLAZA SEC. CO. V. FRUEHAUF CORP., 643 F.
Supp. 1535, 1543 n.5 (E.D. Mich. 1986).
-15-
exercise under similar circumstances in a like position." PLAZA SEC. CO. V.
FRUEHAUF, 643 F. Supp. 1535,1542-43 (E.D. Mich. 1986) (citation omitted).
Outside directors cannot satisfy their duties merely by rubber stamping a
decision by management or the interested directors. SEE EDELMAN V. FRUEHAUF
CORP., 798 F.2d 882, 886 (6th Cir. 1986). "The exercise of fiduciary duties by a
corporate board member includes more than avoiding fraud, bad faith and
self-dealing. Directors must exercise their honest judgment in the lawful and
legitimate furtherance of corporate purposes." ID. (citation omitted).16
Furthermore, in the context of a contest for corporate control, such as a
tender offer, a heightened level of scrutiny applies to director conduct. A
board may not set up defensive measures "by any Draconian measures available."
UNOCAL CORP. V. MESA PETROLEUM CO., 493 A.2d 946, 955 (Del. 1985). The board
must satisfy an "enhanced duty" by demonstrating both that there are reasonable
grounds to believe that a danger to corporate policy and effectiveness exists,
and that the defensive response was reasonable and proportionate in relation to
the threat posed. SEE UNITRIN, INC. V. AM. GEN. CORP., 651 A.2d 1361, 1373 (Del.
1995). The defensive response cannot be preclusive of outside offers. ID. at
1386.
Where, as here, shareholder voting rights and the shareholder franchise are
implicated, an even higher level of scrutiny applies. As the Delaware Supreme
Court reaffirmed earlier this month, "[a] board's unilateral decision to adopt a
defensive measure touching `upon issues of control' that purposefully
disenfranchises its shareholders is strongly suspect under UNOCAL, and
- --------------
16 Because the Taubman family exercises effective control, it also owes a
fiduciary duty to the TCI shareholders. SEE KAHN V. LYNCH COMMUNICATION SYS.,
INC., 638 A.2D 1110, 1113-15 (Del. 1994); MAGGIORE V. BRADFORD, 310 F.2d 519,
521 (6th Cir. 1962).
-16-
cannot be sustained without a `compelling justification.'" MM COS., INC. V.
LIQUID AUDIO, INC., 2003 WL 58969, at *10 (Del. Jan. 7, 2003) (A1217).17
In particular, it is well established that stock issued by insiders to
themselves "for [the] purpose of establishing control of [the] corporation, and
not having some corporate goal as its principal purpose, is fraudulent as
against the other shareholders and cannot be permitted to stand." CAMPAU V.
MCMATH, 185 Mich. App. 724 (Mich. Ct. App. 1990); SEE CONDEC CORP. V.
LUNKENHEIMER CO., 230 A.2d 769, 775 (Del. Ch. 1967) ("shares may not be issued
for an improper purpose such as a take-over of voting control from others"). An
injunction may issue to prevent the voting of shares issued by insiders to
obtain control for themselves or perpetuate themselves in office. CAMPAU, SUPRA;
SEE PACKER V. YAMPOL, 1986 WL 4748 (Del. Ch. Apr. 18, 1986) (A1228).18 This is
true even if the stock issuance was legally authorized. SEE SCHNELL V.
CHRIS-CRAFT INDUS., 285 A.2d 437, 439 (Del. 1971) ("inequitable action does not
become permissible simply because it is legally possible.").
Applying the above principles, plaintiffs have shown a likelihood of
success on their breach of fiduciary duty claims. The issuance of the Series B
to the family in 1998 was an
- ------------
17 SEE CONOCO, INC. V. SEAGRAM CO., 517 F. Supp. 1299, 1303 (S.D.N.Y. 1981)
("What is sometimes lost sight of in these tender offer controversies is that
the shareholders, not the directors, have the right of franchise with respect to
the shares owned by them .... The Directors are free to continue by proper legal
means to express to the shareholders their objection and hostility to the ...
proposal, but they are not free to deny them their right to pass upon this offer
or any other offer for the purchase of their shares.").
18 SEE ALSO ASARCO INC. V. COURT, 611 F. Supp. 468, 480 (D.N.J. 1985)
("[counterclaimant] holds a substantial block of Asarco common stock and
evidently plans to acquire in excess of 20 percent of the total common shares
outstanding. If it does so, its vote will be illegally diluted by virtue of the
new preferred."); DROBBIN V. NICOLET INSTRUMENT CORP., 631 F. Supp. 860, 913
(S.D.N.Y. 1986); BEZTAK V. BANK ONE COLUMBUS, N. AM., INC., 811 F. Supp. 274,
283-84 (E.D. Mich. 1992); PHILLIPS V. INSITUFORM OF N. AM., Civ. No. 9173, 1987
WL 16285 (Del. Ch. Aug. 27, 1987) (A1240).
-17-
egregious act of corporate malfeasance that served no purpose other than to give
the family an effective veto over offers it did not want. The Series B was
essentially gifted to the family, was unnecessary to the attainment of any valid
corporate goal, and certainly had no "compelling justification." The fact that
the Series B was appended to a transaction that was deliberately structured so
as to avoid a shareholder vote is further evidence that the primary purpose of
the SERIES B was to seize control at the expense of the public shareholders. SEE
HILTON HOTELS CORP. V. ITT CORP., 978 F. Supp. 1342, 1349 (D. Nev. 1997)
(enjoining restructuring plan upon finding that primary purpose was entrenchment
and board "offered no credible justification for not seeking shareholder
approval" even though shareholder vote not legally required).
Adopted at a time when the family was concerned about actual (Rouse) and
potential bidders or "interlopers" -- and kept in place today to thwart the
SPG/Westfield offer -- the Series B is vastly disproportionate to any actual or
imagined threat to the Company. It is draconian and completely preclusive of
unsolicited third party offers, which was precisely its goal. The family can
block third party offers and preclude the shareholders from considering, for
themselves, whether they wish to tender for a premium. The board's passive
acceptance -- a rubber stamping -- of this usurpation of power cannot be
justified.
SPG has standing to assert this claim. The unique harm SPG is suffering in
its capacity as a potential acquiror creates the requisite "personal stake" and
"injury in fact" that is concrete, particularized, and imminent. MARKVA V.
HAVEMAN, 168 F. Supp. 2d 695, 704 (E.D. Mich. 2001) (citation omitted); SEE ALSO
SIERRA CLUB V. MORTON, 405 U.S. 727, 731-32 (1972).19
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19 As the SEC has stated: ""[t]he substantial efforts and expenditures necessary
for a person to commence a tender offer establish a `personal stake' in the
controversy sufficient to satisfy that
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Numerous courts have held that shareholder-bidders have standing to bring
actions attacking defensive measures designed to thwart their tender offer. IN
RE GAYLORD CONTAINER CORP. S'HOLDERS LITIG., 747 A.2d 71, 81 (Del. Ch. 1999)
("settled case law indicates that a potential acquiror may bring an individual
action to challenge defensive actions impeding its bid. ..."); CROUSE-HINDS V.
INTERNORTH, INC., 518 F. Supp. 390, 403 (N.D.N.Y. 1980) (same).
Regardless of whether SPG owned shares of the Company when the Series B was
issued, SPG TODAY is suffering individual harm as a potential acquiror of the
Company as a result of defendants' CURRENT and CONTINUING efforts to thwart the
SPG/Westfield offer. This continuing harm, and SPG's current status as a bidder,
are sufficient to give it standing. SEE TORCHMARK CORP. V. BIXBY, 708 F. Supp.
1070, 1077-78 (W.D. MO. 1988) (bidder-plaintiff had standing to attack target's
defensive efforts as a breach of fiduciary duty irrespective of when it acquired
its shares); CRTF CORP., 683 F. Supp. at 428, 437 (tender offeror had standing
to challenge target company's defensive "poison pill" as a breach of fiduciary
duty even though plaintiff did not become shareholder until after adoption of
the defensive mechanism; because plaintiff alleged "a continuing wrong with
respect to at least the existence" of the poison pill, "we will not dismiss the
claim on this basis [standing]").20
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standing requirement.'" CRTF CORP. V. FEDERATED DEP'T STORES, INC., 683 F. Supp.
422, 429-30 (S.D.N.Y. 1988) (quoting SEC Amicus Curiae Brief).
20 In addition, because SPG is preparing to mount a proxy solicitation to remove
various obstructions that are impeding its tender offer, including the Excess
Share Provision, it also has standing to attack those impediments. SEE PACKER V.
YAMPOL, at *13 (A1228).
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B. THE FORMATION OF A GROUP WITH RESPECT TO 33.6% OF TCI'S VOTING SHARES
PRECLUDES VOTING OF THOSE SHARES WITHOUT SHAREHOLDER APPROVAL.
The Court has already ruled that it could infer from the Amended Complaint
that "Robert Taubman, the Taubman Family and those persons who entered into
Voting Agreements with Robert Taubman constituted a group and that their
aggregation of shares was a `control share acquisition' under the Control Share
Act." Jan. 22 Order at 16. The Schedule 13D trumpets the formation of a group
among Robert Taubman, the family and the family friends to vote against the SPG
offer. Numerous other admissions are to the same effect. SEE, E.G., A504 ("the
Taubman family and other shareholders, with combined voting power of over a
third of the total voting power of the Company's capital stock, have indicated
that they do not intend to tender their Common Shares and have taken the firm
position that they are not interested in pursuing a sale transaction."); A570-71
("The owners of over one-third of the outstanding Taubman Centers shares have
publicly announced their opposition to Simon's hostile offer"); A120 ("holders
of more than a third of the voting power HAVE ALREADY EXPRESSED THEIR AGREEMENT
with the board's position that Taubman Centers is not for sale, AND WILL VOTE
AGAINST the Simon proposal if the meeting is held") (emphasis added).
As the Court has held, citing the Official Comments to Indiana's control
share statute, the "group" approach under the Michigan Control Share Act is
similar to that under Section 13(d). SEE BREAUD V. AMATO, 657 So. 2d 1337, 1343
(La. Ct. App. 1995). The threshold determination for the existence of a group
under 13(d) is whether the defendants "agreed to act together for the purpose of
acquiring, holding, VOTING or disposing of" a company's shares. SCHAFFER V. CC
INV., LDC, 2002 WL 31869391, at *4 (S.D.N.Y. Dec. 20, 2002) (A1249) (emphasis
added). An agreement, which may be proven by direct or circumstantial evidence,
may be formal or
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informal, and need not be written. SEE MORALES V. QUINTEL ENTM'T INC., 249 F.3d
115, 124 (2d CIR. 2001); WELLMAN V. DICKINSON, 682 F.2d 355, 363 (2d Cir. 1982).
"All that is required is that the members of the group have combined to further
a common objective with regard to" acquiring, holding, voting or disposing of
securities. MORALES V. FREUND, 163 F.3d 763, 767 n.5 (2d Cir. 1999).
Courts applying these principles have found sufficient evidence of the
existence of a group to grant preliminary injunctive relief on section 13(d)
claims. SEE CHAMPION PARTS REBUILDERS, INC. V. CORMIER CORP., 661 F. Supp. 825,
850 (N.D. Ill. 1987) (issuing preliminary injunction where facts indicated,
INTER ALIA, "a common plan and goal" and "correlation of defendants' activities
and intercommunications"); SEILON, INC. V. LAMB, No. C 83-314, 1983 WL 1354, at
**13-14 (N.D. Ohio July 27, 1983) (A1257) (issuing preliminary injunction based
upon, INTER ALIA, statement by one member that she represented a group of
shareholders and a meeting among members of the group, stating "[a]ny other
outcome of a discussion among friends and former associates controlling 48% of a
company who are jointly dissatisfied with current management is, in a word,
unthinkable"); JEWELCOR INC. V. PEARLMAN, 397 F. Supp. 221, 250-51 (S.D.N.Y.
1975) (issuing preliminary injunction based upon evidence of target's "battle
plan" to thwart attempted takeover).
SPG submits that the question here is not even close, and that there is
sufficient evidence not only preliminarily to enjoin the "group" from voting but
to direct a declaratory judgment in plaintiffs' favor.
Recognizing, too late, the consequences of their recent actions, defendants
THREE DAYS AGO filed an "amended" 13D announcing that Robert Taubman and the
parties to the Voting
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Agreements had suddenly "terminated them" and that "there are no longer any
agreements, arrangements or understandings" between them." A573, 592-93. Far
from disproving the existence of a group, the parties' "termination agreement"
merely confirms that they continue to act (in the words of the Indiana
commentary) "cooperatively" and "in concert" to further the group's common
objectives at the whim of Robert Taubman and his family. Defendants'
self-serving claim that that their agreement is at an end cannot "unring the
bell." No one can seriously believe that their "expressed agreement" to "vote
against the SPG proposal" (A120) has changed in the slightest. "It would require
a degree of naivete" to believe that the admitted group activities "were not the
product of an agreement" that exists to this day. SEE CITIZENS FIRST BANCORP,
INC. V. HARRELD, 559 F. Supp. 867, 872 (W.D. Ky. 1982).
In any event, the termination of the Voting Agreements between Robert
Taubman and the family friends does not change the fact that the Taubman family
members formed a group that continues to exist. The formation of that group was
manifested by the filing of the 13D by the Taubman family members, including not
only Robert but William Taubman and the Alfred Taubman trusts and entities,
collectively holders of 30% of TCI's voting power. A516, 543-45. Had the family
members not been part of the group formed to vote against the SPG offer, there
would have been no reason for them to file a 13D, for the first time, in
November 2002.
Robert Taubman's own testimony confirms that he was acting pursuant to an
understanding with the family. Asked about the Voting Agreements, he testified
that he spoke to his father and brother before entering into them and they all
agreed that "WE were going to ask for them." A1161-62. He referred to the 13D
filing "that WE made at the time WE entered into them." A1156 (emphasis added).
He continued: "[T]he statement that WE made when WE
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announced these was to clearly and resolutely say to the public and the
investment community that OUR -- that WE were very resolute in OUR position."
1157 (emphasis added); A1128-30 ("I had spoken to my father, spoken to my
brother, spoken to my sister, and we had come to that conclusion [to vote
against the transaction])."
Taubman then testified about contacting another person about entering into
a voting agreement.
Q: And did Mr. Kuhn agree to enter into a voting agreement with you?
A: If, if WE decided that WE wanted to, he was prepared to do so.
Q: But you didn't.
A: WE decided not to.
Q: WHEN YOU SAY "WE "YOU'RE REFERRING TO YOUR FAMILY?
A: YES.
A1159-60 (emphasis added).
Defendants' argument that they made no "acquisition of control shares" is
beside the point. The Control Share Act covers the acquisition not only of
shares but also of the right, alone or as part of a group, to "exercise or
direct the exercise" of VOTING POWER. MCL ss. ss. 450.1790, 1791(1) (A1164-65)
(emphasis added). As stated in the Indiana commentary:
[t]he relevant inquiry is whether one or more acquiring persons have
acquired SUFFICIENT PRACTICAL ABILITY IN FACT "to exercise or direct
the exercise of the voting power ... within the statutory ranges, and
not simply whether a single person acquires actual record ownership of
a certain percentage of shares.
IND. CODE ss. 23-1-42-1, Official Comments (emphasis added). Furthermore, under
Section 13(d), each member of a group is deemed to have acquired the voting
power held by the other
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members upon the formation of the group "even without additional purchases of
stock by any of its members." TEXASGULF, INC. V. CANADA DEV. CORP, 366 F. Supp.
374, 403 (S.D. Tex. 1973).21
II. SPG WILL SUFFER IRREPARABLE HARM.
SPG and the public stockholders will suffer irreparable injury if the
requested relief is not granted. Loss of the opportunity to make a tender offer,
and the loss, on the part of the shareholders, to participate in that tender
offer constitute irreparable harm. SEE BUCKHORN, INC. V. ROPAK CORP., 656 F.
Supp. 209, 236 (S.D. Ohio 1987) (irreparable harm to offeror and target's
shareholders where target's conduct "would effectively kill the tender offer");
MINSTAR ACQUIRING CORP. V. AMF, INC., 621 F. Supp. 1252 (S.D.N.Y. 1985)
(irreparable harm if plaintiff's tender offer is defeated due to illegal
defensive tactics). Furthermore, shareholders suffer irreparable harm where
their right to vote is frustrated or denied. SEE AHI METNALL, L.P. V. J. C.
NICHOLS CO., 891 F. Supp. 1352, 1359 (W.D. Mo. 1995); ASARCO, 611 F. Supp. at
480.
III. DEFENDANTS WILL NOT SUFFER SUBSTANTIAL HARM.
The injunction requested will not cause substantial harm to the Taubman
family. The family, if it wishes, may retain its partnership units and economic
and voting interests in TRG. A935-36; A10-11. Furthermore, defendants cannot
claim harm if they are merely prevented from voting shares which they do not
have the right to vote under the Control Share Act. The group can still vote
those shares if they obtain shareholder approval to do so, and there is nothing
preventing the Taubmans from soliciting proxies for a shareholder resolution
approving the
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21 SEE ALSO 17 C.F.R. ss. 240.13d-5(b)(1) ("When two or more persons agree to
act together for the purpose of acquiring, holding, voting or disposing of
equity securities of an issuer, the group formed thereby shall be deemed to have
acquired beneficial ownership . . . as of the date of such agreement, of all
equity securities of that issuer beneficially owned by any such persons.").
-24-
group's voting rights. The family will still have its Series B stock and is not
irrevocably stripped of the right to vote those shares if shareholder approval
is obtained.
IV. AN INJUNCTION WILL SERVE THE PUBLIC INTEREST.
The public interest will be served by the relief requested because
thousands of shareholders, including pension funds that hold shares in trust for
thousands of employees, will receive the right to tender their shares in return
for cash at a substantial premium. Furthermore, an injunction will serve the
public interest by preventing the Taubman family from reaping the benefits of
the board's breaches of its fiduciary duties and violations of Michigan law.
Finally, the injunction will serve the public interest in corporate democracy by
permitting the common shareholders to vote to amend the Articles without the
dilutive effect of the Series B Preferred STOCK. AHL METNALL, 891 F. Supp. at
1360; ASARCO, 611 F. Supp. at 480.
CONCLUSION
For the reasons set forth above, SPG respectfully requests that the Court:
(1) preliminarily enjoin the holders of the Series B from voting those shares;
and (2) grant to SPG such other and further relief as the Court deems fair and
equitable.
Dated: January 31, 2003
MILLER, CANFIELD, PADDOCK & WILLKIE FARR & GALLAGHER
STONE, P.L.C. 787 Seventh Avenue
New York, New York 10019
Telephone: (212) 728-8000
By: /s/ Carl H. von Ende Facsimile: (212) 728-8111
-----------------------------------
Carl H. von Ende (P21867)
Todd Holleman (P57699)
150 West Jefferson, Suite 2500
Detroit, Michigan 48226-4415
Telephone: (313) 963-6420
Facsimile: (313) 496-7500
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