Goldman Sachs Chosen as Buyer Of National Golf

Staff Reporter

The board of National Golf Properties Inc. has narrowed down its search for a buyer to one.

Within the past two weeks, the struggling Santa Monica real estate investment trust entered into exclusive negotiations for a sale to a real estate fund run by Goldman Sachs, sources said. If consummated, the deal would take National Golf private and then merge it with its privately held affiliate, American Golf Corp., these sources said.

Goldman's Whitehall real estate fund is said to be teaming up with Starwood Capital Group, a buyout firm run by Starwood Hotels & Resorts Worldwide Inc. Chairman Barry Sternlicht. They outbid a rival group led by Westbrook Partners and Blackstone Group, the sources said.

Sources said an announcement of a deal is likely to occur between Labor Day and the end of September. "They're in negotiations right now," said one source.

National Golf officials could not be reached for comment.

Such a deal would value National Golf shares in the low teens, sources said. One source put the price in the $12- to $13-a-share range, which would value National Golf at between $157 million and $170 million, based on 13.1 million shares outstanding.

Recently, National Golf's shares have traded at about $10. The stock jumped in July, when rumors of the Goldman Sachs bid first hit the market. In February the stock fell as low as $4.30 a share.

National Golf has a number of affiliated companies that would also be part of any transaction. The value of those assets is difficult to assess. In July, a mortgage trade publication reported that bidders for National Golf were seeking to arrange between $300 million and $400 million to finance a leveraged acquisition.

David Price, the founder of National Golf, American Golf and several other affiliated companies, would likely play little or no role at the new company, the sources said. Most, if not all of his holdings, would likely be sold as part of a several-step transaction.

"There will be some cash in there for David, but he will not survive a restructuring of the deal," said one source.

Price did not return a call seeking comment.

For much of the past year, Price has been struggling to save his golf empire from ruin. A pioneer in the golf course business, Price ran into trouble when the industry began to struggle due to overbuilding and economic recession.

A committee of outside directors, led by interim Chief Executive Charles "Skip" Paul, took over the restructuring process in December, due to Price's conflicts of interest. When shareholders revolted against the committee's earliest plans, Price lost some measure of leverage over the outcome of the restructuring deal. Since then, Paul has sought to convince National Golf's largest shareholders he was working for their benefit.

The months-long auction for National Golf and other Price-related holdings was complicated by Price's interdependent public and private holdings. Outside directors overseeing the negotiations originally planned to merge National Golf with American Golf, and then seek an equity investment in the combined companies.

However, American Golf's debt load made shareholders of National Golf wary of a merger. In the transaction now being contemplated, National Golf's public shareholders would first be bought out by Whitehall, turning the REIT into a private company. Later, National Golf would be merged with the other Price-related assets, including American Golf.

Tax considerations make it preferable for Price to retain some ownership stake in his current holdings. It is not known whether the Goldman offer contains such contingencies. One of the sources said the Westbrook deal contained elements that would have allowed Price to retain some ownership.

National Golf owns 65 percent of National Golf Operating Partnership, a holding vehicle for National Golf's golf course properties. Price and his ex-wife, Dallas, own most of the remainder of NGOP. NGOP units are convertible one-for-one with National Golf stock.

As part of a deal with American Golf's banks reached in July, Price pledged 3.6 million National Golf shares and NGOP units as collateral for American Golf's loans, as well as a second trust deed on Price's Mountaingate Country Club. Price is required to replace the collateral with cash by Oct. 15, in the case of the shares and the units, and Sept. 30, in the case of the second trust deed.

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