Red Sea Hotels has threatened to requisition an extraordinary general meeting of shareholders to push through radical changes in the make-up of the board of Gresham Hotels.

But Gresham has in turn formally requested the Takeover Panel to investigate the alleged links between Red Sea and Mr Ian Ilsley, a 4 per cent shareholder who Gresham believes may be linked to the Israeli group and as a result be part of a concert party under takeover rules. Mr Ilsley and Mr Harvey Soning, a Red Sea nominee to the Gresham board, are both directors of Your Space, a British property company.

Gresham chairman Mr Sean Henneberry has accused Red Sea of attempting to gain control of the Gresham board and has challenged the Israeli group to make a bid. "If Red Sea Group wishes to control the board, it should make a general offer to all shareholders," Mr Henneberry said.

Red Sea has emphatically rejected any link with Mr Ilsley. In a letter to Gresham - seen by The Irish Times, Red Sea chief executive Mr Amos Pickel said: "The first we heard that Mr Ilsley had an interest in shares in Gresham was yesterday afternoon when we received media calls. I can further categorically state that neither I nor Euro Sea Hotels (the subsidiary of Red Sea involved in the Gresham deal) know Mr Ilsley."

Mr Pickel also stated that the matter of Mr Ilsley's shareholding was only raised "to deflect attention away from Gresham's appalling financial and share price performance over the last two years". Mr Pickel angrily rejected the suggestion from Mr Henneberry that Red Sea's two proposed nominees to the Gresham board apart from himself - corporate financier Mr Tom Byrne and property expert Mr Harvey Soning - were anything other than independent.

"To suggest that Mr Harvey Soning and Mr Tom Byrne would not be independent is tantamount to accusing them of abandoning their fiduciary duties to all shareholders. They take exception to any such accusation," Mr Pickel wrote in his letter.

At a meeting between Gresham and Red Sea last week, Red Sea had sought a reduction in the size of the Gresham board from 10 to six, that Mr Pickel should be appointed to represent Red Sea, and that Mr Byrne and Mr Soning be appointed for their financial and property expertise. In his letter to Mr Pickel, Mr Henneberry said: "It is obvious from the people that you have nominated that they are closely associated with Red Sea."

Now Red Sea has put Gresham on notice that it plans to requisition an extraordinary general meeting. A spokesman for Red Sea would not say what proposals it would table for such an e.g.m., but it is understood Red Sea will table a resolution reducing the board from 10 to six and the appointment of the Red Sea nominees.

Much will now depend on the Takeover Panel's assessment of the links between Mr Ilsley and Mr Soning. If the panel finds that a concert party exists, it would mean that Red Sea and Mr Ilsley owned a combined 32.75 per cent of Gresham and would be forced to make a mandatory offer to all shareholders.

Such an offer could not be less than the €1.05 Red Sea paid earlier this month for the 6 per cent stake held by Bank of Ireland Asset Management. If the panel decides there is no concert party, it is likely that Red Sea will requisition the e.g.m. to try to force through radical boardroom changes.

That €1.05 price may be 25 per cent above Gresham's current price of €0.84, but it is a long way short of Gresham's estimated net asset value of €1.78 a share. "Any bid for Gresham will be as much a property play as anything else," commented one market source.

The price of €1.05 values Gresham at €82 million although any bid would have to be pitched well above that level if it were to get the support of the Gresham board.

If Gresham does end up the focus of a bid, its future will be decided by a large group of small shareholders who own 64 per cent of the company, as most institutional shareholders have sold their shares in recent years, when the share price has remained in the doldrums.