In what would be a blockbuster deal, Gold’s Gym International (GGI) is in discussions to acquire Bally Total Fitness, multiple sources tell Club Industry.

The talks have been going on for about a month, and they are intensifying, according to sources. One source described the acquisition discussions as “hot and heavy and real.”

Bally CEO Michael Sheehan says he first heard rumors about the acquisition last week.

“Our general approach is to not respond to rumors,” Sheehan told Club Industry.

JP Morgan Chase Bank, the primary owner of Bally, Chicago, declined comment for this story. So, too, did a high-ranking official at GGI, Irving, TX.

The lack of public comments from Bally and Gold’s has not stopped speculation about an acquisition, when it would take place and what it would mean for the industry. One source says a deal could get done in the next month, around the time of GGI’s franchise convention July 18-20 in Las Vegas. Another industry observer says a deal might not be announced for another 60 to 90 days. If a deal materializes, the two companies would need to get landlord consents to close the transaction.

GGI is owned by private equity firm TRT Holdings, whose assets include the Omni Hotel chain. TRT bought Gold’s from Brockway Moran and Partners in 2004 for $158 million.

JP Morgan shares ownership of Bally with Anchorage Advisors LLC. In 2009, after Bally’s second bankruptcy in 17 months, JP Morgan received 50.5 percent of Bally’s equity, and Anchorage Advisors received 33.7 percent in a reorganization plan approved in bankruptcy court. Bally had been a public company prior to emerging from its first bankruptcy in 2007.

Under its current ownership, GGI has not traditionally disclosed financial information about the company to Club Industry for the magazine’s annual Top 100 Clubs list. GGI did report this year that it had 700 clubs (63 corporate clubs and 637 clubs run by franchisees) at the end of 2010.

Bally, after declining to submit financial information last year, reported $550 million in revenue for 2010, placing the company fifth on this year’s Top 100 Clubs list, which will be released next month. By comparison, Bally reported $1.059 billion in 2006 prior to its first bankruptcy.

NEXT PAGE: SPECULATION GROWS ABOUT GOLD'S AND BALLY

Sources have speculated about the asking price for Bally. One source says that if it sells for $1 million per club, then the total acquisition could be about $270 million. (Bally reported to Club Industry that it operated 278 clubs at the end of 2010.)

“Where else can you buy 270 clubs for $270 million? You can’t,” the source says.

But the source adds that a company buying Bally likely would have to invest an additional $100 million for upgrades and/or a possible re-brand.

“Gold’s might get some religion when they figure out how much it’s actually going to cost,” the source says.

If this deal goes through, there are other issues to consider, sources say. Would Gold’s keep the Bally brand or convert them all to Gold’s Gyms? And how would that sit with current Gold’s franchisees who might have to compete with other company-owned clubs in their territory?

“If they were to operate Bally as a separate entity, then maybe that allows them to run the two concepts, and where there’s overlap with the franchisee, they’d just keep the Bally name,” one source says.

Another source says that if GGI were to acquire Bally, GGI would turn those clubs into corporate clubs, and the Bally brand would disappear.

“As far as position in the marketplace, it certainly enhances GGI’s positioning immediately,” the source says.

Officials at the Gold’s Gym Franchisee Association declined to comment about the speculation of a possible Gold’s acquisition.

In addition to enhancing GGI’s position in the industry, the speculated acquisition also might result in “mass confusion and litigation,” as one source put it. Another source says the acquisition would set in motion an entire consolidation phase of clubs in the industry.

Sheehan, who took over as Bally CEO in 2008 after serving as an executive at 24 Hour Fitness, San Ramon, CA, says he has heard rumors of a Bally sale in the past, even after joining Bally and not long after Bally re-emerged from bankruptcy.

“In our industry, somebody’s buying and selling somebody probably every week,” Sheehan says. “This industry is certainly rife with rumors.”

This time, the speculated Gold’s acquisition of Bally, according to sources, may be more than just a rumor.