A Local Arab Banker?

When an outsider moves to take control of a long-established local business, the process can be about as amicable as a custody fight in family court. Right now, two modest-sized U.S. banks, one in San Jose, Calif., the other in Pontiac, Mich., each with assets in the $300 million range, are embroiled in takeover proceedings that are even more acrimonious than usual. The reason: in both cases, the would-be investors are Arab nationals--the forerunners, as some impassioned local citizens see them, of a full-scale economic invasion by Middle East oil sheiks.

As it happens, Saudi Arabian Entrepreneur Adnan M. Khashoggi, 39, who has offered $14 million for a controlling one-third interest in San Jose's First National Bank, derives his millions not from oil but from a worldwide conglomerate which deals in real estate, autos and the construction of military installations in Saudi Arabia. Khashoggi, whose father was personal physician to the late King Saud, was educated at a California college (Chico State) in the 1950s, and already controls two local banks in the state. But he was prepared for trouble when he made his bid in November for 650,000 new shares of First National. Khashoggi offered to waive his dividends for the first quarter so as not to dilute those of other investors, promised not to bid for additional shares for half a year and vowed to shun any management role.

To no avail. Khashoggi's offer met immediate opposition. Local Jewish merchants briefly--but pointedly--considered boycotting the bank. A few depositors huffily shifted their accounts to rival banks. Fairly typically, a liquor-store owner said: "It worries me that with all those petrodollars, the Arabs will come in and buy us all up."

On the Cheap. Nine of the 14 directors who voted endorsed the proposition, but the deal must be approved this week by the shareholders. Two dissident directors mobilized stockholder opposition by spreading word that a big new stock issue would shrink earnings per share, depressing market values and paving the way for Khashoggi to scoop up more stock on the cheap. Khashoggi, in turn, filed suit against one director for alleged securities-law violations and protested that he was being victimized by a few "individual fanatics." As the vote approached, both the Saudi and his opponents tried to cool the atmosphere. The dissidents conceded that Arab investment in U.S. companies could be beneficial--"under appropriate circumstances"--and Khashoggi sent the shareholders a letter declaring his desire "to build new bridges of understanding between Saudi Arabians and Americans." The betting at week's end was that his bid would be approved.

The outlook is cloudier in Michigan. A nearly unanimous board of directors of Pontiac's Community National Bank is working hard to thwart a tender offer by Ahmad C. Sarakbi, 45, for 50.1% of the bank's shares. A wealthy Lebanese oil broker, Sarakbi is supported by a former chairman of the bank who deplores its present management policies, and a lone director who has been feuding with his colleagues. Sarakbi insists he is acting completely on his own, but Community National directors worry that he could be acting for larger non-government Middle East oil interests looking for investment openings.

In desperation, the directors have accepted a counteroffer to be absorbed into a larger bank-holding company, but Sarakbi already holds enough tendered shares to block that deal when it comes to a stockholders' vote. So Community National officials are now seeking a permanent court injunction barring Sarakbi from buying any shares tendered. Bankers on Detroit's Fort Street, all too conscious of their own vulnerability, are fearful that the Arab might come up the winner.

Flowing Surpluses. The two episodes differ quite sharply, of course. Khashoggi is a veteran absentee investor in California banks; Sarakbi has no banking experience and has declared his intention that Community National "would serve as a liaison between Pontiac and the Middle East." Yet both deals amply demonstrate the kind of wrenching problems, emotional as well as economic, that many communities will be grappling with when oil-country surpluses begin to flow heavily into the U.S. in the form of investments in property and businesses, big and small. In fact, Americans will simply be experiencing what people in other lands learned to live with long ago. Says a San Jose physician: "Now I understand why nationals of other countries have resented American investments in their corporations." For better or worse, the sandal is clearly on the other foot.

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