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Goldman-Led Group to Buy National Golf

Deals: The investors would acquire the company and its affiliate for $1.1 billion, leaving founder David Price with a small stake in ownership.


An investment group headed by Goldman Sachs Group Inc. said Monday that it had agreed to acquire Santa Monica-based National Golf Properties Inc. and its sister company, American Golf Corp., in a $1.1-billion deal that would leave founder and golf course industry pioneer David G. Price with a minor ownership stake and management role.

The buyers, which also include affiliates of Starwood Capital, would supply much needed cash to pay off substantial debts and stabilize one of the nation's largest golf course operations after about a year of mounting financial pressures and charges of conflicts of interest aimed at Price. American Golf is a privately run company that leases and operates most of the 116 courses owned by National Golf, a publicly traded real estate investment trust.

"Given our history of investing in and building golf and leisure-related businesses, this acquisition is a compelling opportunity," said Merrick Kleeman, senior managing director of Starwood Capital, in a statement. "The company has assembled an unparalleled collection of assets and a talented and dedicated team that we believe is well-positioned to lead this industry into the future."

Under the deal, the Goldman Sachs group would pay $12 in cash for each share of National Golf common stock for about $246 million and would assume debt and other obligations of both companies worth about $850 million. The owners of American Golf, which is majority-owned by Price and his family, would receive $10,000 in cash, a 2% stake in National Golf and the option to purchase 2% of American Golf.

Though National Golf approved a controversial merger with American Golf this year, the Goldman Sachs group would purchase the companies separately to minimize taxes, said people familiar with the deal. The sale is scheduled to be completed early next year if it receives shareholder and regulatory approval.

The transaction was welcome on Wall Street, where National Golf shares rose 99 cents to $11.69 on the New York Stock Exchange. They've been as low as $4.30 and as high as $19.35 in the last 52 weeks.

The deal that was approved is much less generous to Price and his family. A previous agreement would have given Price and his family up to a 10% stake in the combined companies and allowed Price to remain chairman with a five-year employment contract. Under the current proposal, Price would serve in the mostly honorary role as chairman emeritus.

"This is an exciting and important next step in the evolution of the companies," Price said in a statement. "I'm thrilled about all we have accomplished and look forward to many great opportunities ahead."

A former attorney, Price founded American Golf in the early 1970s and grew rich by turning money-losing private and public courses into efficient and profitable ventures by applying corporate-style operating methods and standards. American Golf operates more than 300 properties, including the prestigious Mountain Gate Golf and Tennis Club in Los Angeles and five public courses owned by the city of Long Beach.

Price, who is not a golfer, cashed in on the demand for real estate stocks in 1993 by forming National Golf, a real estate investment trust that focused on golfing properties. National Golf owns the properties but handed management duties to American Golf under long-term leases and contracts.

Both companies came under severe financial pressure last year resulting from a slowing economy, the Sept. 11 terrorist attacks and a glut of new courses. Last year, American Golf announced that it would halt lease payments to National Golf and that its deteriorating financial health had put it in technical default on some of its loans. As a result, National Golf also was in technical default on its loans and was forced to cut its dividend.

Efforts to salvage the business were complicated by Price's control and ownership of both companies. Some shareholders and industry observers said that Price and his family stood to avoid most of the financial fallout at the expense of public stockholders. Shareholder lawsuits claimed that Price misappropriated National Golf funds through a "scheme of complicated financial dealings" that involved entities controlled by the executive. The company denied the allegations.

Charles Paul, an independent board member of National Golf who oversaw the sale of the company, said one of the biggest challenges was assuring shareholders that Price had no undue influence. The goal "was to get control of the process and make sure it was independent," he said.

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