Business Opinion/John McManus:  The annual general meeting of Real Estate Opportunities in Jersey last week was more like something you would expect from the worst sort of penny share exploration company than the owner of a £464 million (€690 million) property portfolio.

Powerful figures such as Noel Smyth and Michael Chadwick were left fuming impotently after trading insults with the board. Guy Naggar, a well-respected City figure, was equally unsuccessful in getting satisfactory answers from the board, while, circling in the background, is Dermot Desmond.

A first-class scrap is brewing at REO and the company's valuable Irish property portfolio is at the heart of it. As it stands Richard Barrett and John Ronan of Treasury Holdings - which owns 35.5 per cent - have the whip hand and are grimly hanging on to control of the company with the support of a mystery investor, or investors, who hold 8.37 per cent of the company through Isle of Man-registered Calyx.

Their determination to retain control is understandable. They founded REO in 2001 when they backed a large portion of their Irish properties into it in return for a 24 per cent stake. They also established a joint venture with REO, called Havenview, to develop other properties.

REO was capitalised at £800 million and was originally a split capital trust, with a heavy proportion of its assets, £326 million, invested in bonds. The theory was that investors would be attracted by the steady income from the bonds and the potential for very significant capital growth in the property portfolio.

The company was very badly hit by the collapse in the markets and the scandal surrounding the mismanagement of split capital trusts. As a result, by late 2002, the share price had collapsed from around £1 to 12p.

A number of investors, most notably Noel Smyth and Michael Chadwick, saw an opportunity. They knew full well the value of REO's property portfolio which includes Marks and Spencer's in Cork and, in Dublin, the Stillorgan Shopping Centre and office blocks on Mespil Road and Baggot Street. Through Havenview, the company has an interest in the Central Park development in Leopardstown, Ballymun Shopping Centre and more property on Mespil Road.

Mr Naggar's group, Dawnay Day, was also alive to the situation and started buying into REO.

It did not take long for the incoming shareholders to fall out with Treasury.

Dawnay Day, in particular, took exception to share buybacks in 2002 and 2003 which allowed Treasury increase its stake to 35.5 per cent without having to make a bid for the group thanks to a Takeover Panel waiver.

From Dawnay Day's point of view, this looked like Treasury using the company's own money to increase its control over it and the properties it had put into REO in 2001.

The big shareholders also objected to the suspension of dividends and the attractive fees REO was paying Treasury for consultancy services.

What happens next is not clear, but the endgame is clearly a situation where Treasury surrenders control of the company and its Dublin properties or buys out the other shareholders at a nice profit.

Attention is now focusing on the identity of the people behind Calyx, whose support is critical to Treasury. Following its failure to make any progress at the annual meeting, Dawnay Day is now writing to the executive directors reminding them of their fiduciary duty and asking them to pursue the matter.

Failing that a number of legal options are available.

When and if the identity of the Calyx shareholders is disclosed, things could unfold in several ways, but the first issue will be whether they constitute a concert party with Treasury. One thing is for sure. It will not be pretty.

It is hard to understand why Treasury is putting itself through all this - including the negative publicity - when buying out REO would be relatively easy.

Sources familiar with the situation point out that REO has net assets of around £167 million of which £90 million is in cash and thus could be used to fund the buyout. Given that Treasury already owns 35.5 per cent of the group it would only have to find another £20 million or so to fund a 65p per share offer - a 25 per cent premium above last Friday's price of 52p.

According to the REO annual report, as of December 31st, 2003, the Treasury group directly or indirectly owned and/or operated a property portfolio of approximately €1.4 billion. Hard to believe they can't find £20 million somewhere.