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Golf Property Firms' Merger a Step Closer to Tee

Real estate: National Golf's board approves agreement with ailing sister American Golf, but hurdles remain.


Moving ahead with a controversial business plan, the board of National Golf Properties Inc. on Monday announced its approval of a definitive merger agreement with ailing sister company American Golf Corp. despite the objections of a major National Golf stockholder and concern among Wall Street analysts.

Combining the two Santa Monica-based companies controlled by Los Angeles businessman David G. Price would create the country's largest owner and operator of golf courses and help the companies overcome immediate financial troubles and long-term competitive pressures, said supporters of the combination.

American Golf is a privately owned company that leases and operates most of the courses owned by National Golf, a publicly traded real estate investment trust.

"We want to make sure that we come out of this with a strong company," said Charles S. Paul, chairman of National Golf's independent directors committee and interim chief executive of the company.

Under the agreement, each share of National Golf would be converted into a share in a newly created company composed of National Golf and American Golf. Unlike National Golf, which as a REIT must distribute most of its earnings in the form of dividends, the new entity would be organized as a traditional public company.

Shareholders of American Golf, which is owned primarily by Price and his family, would receive 156,005 shares in the new company; as many as 100,000 shares of preferred stock that could be converted into common stock; and $10,000 in cash. In addition, American Golf no longer would have to repay a $6-million debt owed to Price.

The companies announced the merger proposal in February.

National Golf said it anticipated completing the merger by the end of the third quarter, though it faces significant hurdles. National Golf executives must win the approval of shareholders and lenders while they seek to postpone and restructure some maturing loans and seek an infusion of new equity.

Steve Sakwa, real estate industry analyst with Merrill Lynch, said there was not enough information available to determine how National Golf shareholders would be affected if new investors were brought on board.

"If you are an existing shareholder ... you have the potential risk of dilution down the road," said Sakwa, who maintained his "sell" rating on the company stock. "There are still a lot of questions that didn't get answered."

Sakwa said National Golf, which owns more than 130 properties nationwide, has yet to provide an adequate picture of American Golf's financial performance. Some investors repeated their concerns that National Golf would assume the problems of American Golf to the benefit of Price and his family.

"This is still solving the significant problems of American Golf on the backs of the equity holders of National Golf," said Carl Tash, chief executive of Cliffwood Partners, a Brentwood investment firm that owns about 9% of National Golf stock. "American Golf should clean up its balance sheet first. We still oppose the transaction."

The companies' problems began last year after eroding revenue at American Golf put it and National Golf technically in default on many of their loans. American Golf later notified National Golf that it would miss rent payments, the major source of income for National Golf. American Golf missed payments for February of this year and part of January but paid rent due in March, said Paul, the interim chief executive.

Paul said he anticipated no major changes at American Golf, which manages more than 300 private and public courses. Shares of National Golf fell 23 cents to $7.17 on the New York Stock Exchange.

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