National Golf Nearing Pact With Distressed Course Operator

Staff Reporter

National Golf Properties Inc. is set to announce final terms of a planned merger with its primary tenant, golf-course operator American Golf Corp., and other interests controlled by National Golf Chairman David Price.

The deal, originally expected in late February, could finally be announced this week, said one source close to the negotiations. It will not include any equity investment by a third party, as originally contemplated when the companies' letter of intent was announced on Feb. 14.

"If there is a deal it will be between the company and the Price interests," said the source. A spokesman for National Golf declined to comment.

Terms have been "hotly negotiated" over the past several weeks between Price and a committee of National Golf's independent directors, led by interim Chief Executive Charles S. Paul, the source said.

In February, Paul said a new equity investment in the combined company would be part of the proposed transaction. Instead, an equity investment will be pursued separately, the source said. A decision on a transaction with new equity should quickly follow a definitive merger plan, as there is substantial investor interest, the source said.

(As previously reported, some potential investors were reluctant to sign confidentiality agreements with so few details of the deal or the companies' current finances available.)

Meanwhile, Cliffwood Partners LLC, owner of 9 percent of National Golf's shares, said in a March 21 filing that it has proposed an alternative to the planned merger between National Golf and American Golf. Cliffwood wants National Golf to abandon its plans to merge with American Golf, and find other golf course operators to run its courses. Cliffwood also wants the company to remain a Real Estate Investment Trust.

"I'm opposed to any deal that simply fixes American Golf's problems on the back of National Golf," said Cliffwood President Carl Tash.

As previously reported, National Golf granted American Golf a rent deferral in February after American Golf said it couldn't pay its rent. American Golf operates most of the 130 golf courses owned by National Golf.

National Golf's share price fell as low as $4.30 in February, when the company eliminated its dividend and signaled it would shed its REIT status with the planned merger. Recently it traded at $7.40, compared with a 52-week high of $27.70.

"Obviously we're frustrated and I think the independent committee has a very high burden here in demonstrating why a significant equity investment needs to be done at these depressed values," Tash said.

As part of Cliffwood's plan, National Golf would split operation of its courses into regional groups, and put the contracts up for bid. It would also treat American Golf "as the delinquent tenant that it is," and seek lease terminations, if necessary. Finally, Cliffwood said it wants National Golf to sell underperforming courses to aid in a financial turnaround.

Paul responded to the Cliffwood filing with this statement: "The independent committee has carefully evaluated the alternatives available to us, and we have concluded that a merger with American Golf is in the best interests of our stakeholders. We are working hard to finalize the details of the merger agreement."

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