The Red Sea Hotel Group has made its first serious assault on the Gresham Hotel group, blocking the re-election of three of its directors, including former United Drug chief executive Mr Jerry Liston. The move creates further uncertainty for shareholders and yesterday Gresham chief executive Mr Patrick Coyle called on Red Sea now to make a bid for the company.

Red Sea is Gresham's biggest shareholder with more than 28 per cent of its voting shares. Another shareholder, Monaco-based Mr Ian Isley, who holds 4 per cent of the group's shares, also voted against the re-election of the three directors.

The Irish Takeover Panel recently rejected Gresham Hotels' claim that Mr Isley was linked to the Israeli hotel group. If the two shareholders had been found to have been in league with each other to wrest control of Gresham, they would have been required to make a mandatory bid for the company at €1.05 a share. Gresham shares closed unchanged at 89 cents in Dublin yesterday.

There has been speculation that a group of Irish investors could be preparing a bid for the hotel group.

Holders of some 10 million Gresham shares, most of whom are small shareholders, voted for the re-appointment of the three directors but Red Sea, together with Mr Isley, cast more than 26 million votes against the motion throwing the board into disarray.

Mr Coyle said the board would meet shortly to consider the impact of Red Sea's latest move and would continue to operate the company in the interests of all of its shareholders. He said it was unlikely that Mr Liston, who had served as a non-executive director for two years, would seek to be re-elected in the future.

The two other directors who lost out yesterday, Mr Paul McCracken and Mr Domenico Venosi, are both executives with the Gresham group and will continue in their roles.

Speaking after the votes were counted yesterday, Mr Coyle said the outcome was very disappointing and created a hiatus for shareholders.

"Red Sea has never been forthcoming about what it is going to do. Its actions at this meeting were very disappointing. It is trying to get control without making a proper approach and paying for control."

A representative of Red Sea, Mr Des Carville, from Davy Corporate Finance, read a statement to the meeting stating it was seeking the directors' removal in protest at the group's poor performance.

"The board must take responsibility for the appalling performance of Gresham. It [Red Sea] does not hold them individually responsible for mismanaging the company. As the board was not willing to listen to its concerns, it had no option but to vote in this manner," he told the meeting.

Red Sea also criticised the board for its inability to create and deliver shareholder value and its inability to embrace the expertise and knowledge of its largest shareholder.

"The board seemed interested merely in protecting its control and dominance at whatever cost," the statement said.

Gresham chairman Mr Sean Henneberry told shareholders it had previously offered to enter into discussions with Red Sea and had offered the group representation on the board.

"This was rejected on the basis that Red Sea would not divulge its strategy until the board had been restructured as it wished," according to the chairman. Red Sea had sought to appoint three directors, including the chairman with the casting vote, which would give it control.

Red Sea stated that it would now consider Mr Henneberry's comments and would make a further statement in due course. It has invested €25 million in Gresham, buying its first block of shares in May 2000.

Since then the share price has fallen by 16 per cent. "To say we are extremely disappointed is an understatement," Mr Carville said.