National Golf May Merge With American Golf

Santa Monica-based National Golf Properties Inc. tentatively agreed to merge with its financially troubled partner and largest tenant, American Golf Corp., as both companies struggle to overcome a deep industry slump.

The proposal, which was announced Wednesday night, was met with skepticism on Wall Street, where some industry analysts raised concerns about possible conflicts of interest involving National Golf’s chairman and largest shareholder, David G. Price, who also is head of privately owned American Golf.

Investors are concerned that Price may be using his position at both companies to gain a better deal for himself at the expense of National Golf’s other shareholders, an analyst said. American Golf leases and operates the vast majority of the more than 140 golfing properties owned by National Golf, which is a real estate investment trust.

National Golf “investors are saying that American Golf is basically a bankrupt company and why are we paying anything at all for it,” Merrill Lynch analyst Steve Sakwa told Bloomberg News. “Investors are concerned about the possible conflict of interest in Price’s dual role.”

On the New York Stock Exchange, shares of National Golf fell 8 cents to close at $6.99.

The company’s shares have plunged nearly 70% since mid-August.

National Golf provided relatively few details, including the value of the proposed merger. The firm said the owners of American Golf may receive preferred stock as part of the transaction, which would create the world’s largest publicly owned golf course company with about 300 owned and managed properties. The deal, which is subject to reaching a definitive agreement and other approvals, is scheduled to close in the second quarter, National Golf said.

“This powerful combination allows National Golf and American Golf the opportunity to maximize the multiple strengths of all the combined companies on an international basis with the goal of creating and growing the finest and most successful golf company in the world,” Price said in a statement.

Company officials could not be reached for further comment.

As part of the merger plan, National Golf said it would seek a major new equity investor in the combined company. A major investor, such as an aggressive opportunity fund, could put a further squeeze on the company’s public shareholders, analysts said.

“Bringing in opportunity fund money does not bode well for shareholders,” said Matthew Ostrower, a securities analyst at Morgan Stanley Dean Witter. “They require huge returns.”

This week, National Golf shareholders were told that the company had suspended its 46-cents-a-share quarterly dividend in what some analysts said was a prelude to a combination with American Golf.