By Matt Grossman

Simon Property Group Inc. is terminating its $3.6 billion deal to acquire Taubman Centers Inc., saying the rival mall owner didn't respond appropriately to the business challenges caused by the coronavirus pandemic.

The deal, announced in February, would have combined two mall landlords as the industry struggles with the decline of traditional retail stores against the rising tide of e-commerce.

Taubman described Simon's attempt to terminate the deal as "without merit" in a statement Wednesday afternoon, adding that it still considers Simon to be bound by the agreement.

"Taubman intends to hold Simon to its obligations under the merger agreement and the agreed transaction, and to vigorously contest Simon's purported termination," Taubman said.

Taubman shares declined nearly 18% to $37.23 Wednesday afternoon. Shares of Simon were down about 1.5% to $85.15.

The deal gave Simon the right to end the agreement if Taubman was disproportionately affected by a pandemic, Simon said in a statement Wednesday. The pandemic's impact on Taubman was amplified because much of its portfolio of malls is in dense metropolitan areas, and its tenants rely on high-end shoppers and tourists, according to Simon.

Taubman's portfolio includes 26 shopping centers in the U.S. and Asia, the company said in an unrelated document published last week. Its properties include Los Angeles' Beverly Center, The Mall at Short Hills in Short Hills, N.J. and International Place Market near Honolulu's tourist center.

Simon owned a stake in more than 200 U.S. properties as of the end of last year, the company said in its annual report. Its plan to buy Taubman followed an unsuccessful pursuit of rival Macerich Co. in 2015 and a February deal to acquire Forever 21, along with two partners.

The coronavirus pandemic dealt a blow to retail tenants and landlords already struggling with a gradual trend of declining income as consumers shifted more spending online. The public-health crisis temporarily closed malls nationwide beginning in March. In April, UBS estimated that 100,000 stores could close in the U.S. over the next five years.

Sales at prominent mall tenants have fallen substantially over the past several months. For instance, Macy's Inc. saw sales decline by as much as 45% in the first quarter. Sales for L Brands Inc., the parent company of Victoria's Secret, fell by 37% in the quarter.

Simon said it filed an action Wednesday in a Michigan court requesting a declaration that Taubman breached the deal's covenants.

Write to Matt Grossman at matt.grossman@wsj.com