London-based investment company Capital Trust Group is facing a buyout offer by a group within the management. Three board directors and an executive director are offering around $40 million to buy out Arab and Western shareholders in Capital Trust, which is active in Middle Eastern investment.

The buyout team have offered $115 for each share in Capital Trust's Luxembourgbased holding company, compared to a face value of $100 per share and an asset value of $105. The buyout, which is conditional on 100 per cent acceptance, is being financed by a large bank with Middle Eastern interests which no-one involved is prepared to name.

A board meeting on 3 March recommended that shareholders wait for a fairness report from an independent institution before making a decision on the offer, according to sources close to the company.

'It'll take about a month and then it's up to the shareholders to accept or reject it,' one source said. 'At the end of the day it depends on the price.' Members of the buyout team, which includes board directors Bassam and Awda Abu Redina and Abdel-Rahman as-Sal and executive director John Oswald, declined to talk to MEED.

General manager of the Capital Trust Group Faisal al-Kudsi declined to join the team and said he was opposed to the buyout bid on principle. 'I find it difficult to invite shareholders in for 10 years then invite them out again,' he told MEED.

'What gave Capital Trust its strength was the wide base and the presence of European and American shareholders.' But he said his unease about the offer assumed that it would turn Capital Trust into a 'closed club,' if successful. 'They might decide to take it public afterwards. I don't know.' Capital Trust was a co-founder of Beirutbased Lebanon Invest, formed in mid-1994 with a capital of $26.25 million. Around the same time it announced plans to set up the Arab Investment & Development Company to invest capital of $100 million in the West Bank and Gaza. Capital Trust is also financial adviser on a $1,600 million utilities upgrade in the Saudi industrial cities of Jubail and Yanbu.

With a paid up capital of $35 million Capital Trust is currently owned by 53 institutions and individuals. Western shareholders are Alex Brown & Sons and State Street Research, both of the US, the Kleinwort Benson group, BHF-Bank of Germany and Kredietbank SA Luxembourgeoise. Arab shareholders include Hassib Sabbagh, one of the founders of leading construction firm Consolidated Contractors International Company (CCC).

Sources close to the company said the root of the buyout lay in differences of opinion within the management about Capital Trust's future direction. The buyout team sees it primarily as an investment firm continuing its current activities but focussing primarily on unquoted North American equities. The other view, championed by Kudsi, is that the company should retain its broad shareholder base and expand as a Middle East financial institution.

'Both routes can be successful, but we'll have to see. If there is a divergence, it's better that it be sorted out now,' a source said. 'These things happen if you get a small management team who are the heart of a company.'