RedBird IMI in talks with government over structure of Telegraph sale

The Abu Dhabi-backed vehicle which had been on the brink of buying The Daily Telegraph is in detailed talks with Whitehall officials about the structure of an onward sale of the newspaper.

Sky News has learnt that RedBird IMI is negotiating with the Department for Culture, Media and Sport (DCMS) about whether it can convert a call option which constitutes the right to take ownership of the Telegraph and Spectator into shares in the assets prior to their purchase by a new owner.

City sources said the discussions were key to the value that RedBird IMI could generate from the sale of some of Britain’s most prominent media assets because their outcome would determine whether the newspaper and magazine titles could be sold separately.

RedBird IMI is said to have argued that it should be allowed to convert the option into shares as part of a ‘back-to-back’ transaction with buyers of the Telegraph and Spectator.

It is understood to believe that The Spectator could be worth £100m or more as a ‘trophy asset’ but that that valuation would be impaired if the magazine is sold in the same transaction as the newspapers.

A public interest intervention notice (PIIN) which prevents RedBird IMI from exerting control over Telegraph Media Group (TMG) could also be extended depending on the identity of a prospective new owner, according to insiders.

The talks about the conversion of the call option are among the topics under negotiation between RedBird IMI and the DCMS.

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A further auction of the newspapers and Spectator is likely to get underway in the coming weeks, once structural issues have been resolved.

Earlier this month, Sky News revealed that Raine Group, best-known in Britain for its roles in recent deals involving Manchester United and Chelsea football clubs, and Robey Warshaw are being lined up to advise on the next phase of the Telegraph’s ownership.

RedBird IMI, which is part-owned by US-based RedBird and majority-owned by Abu Dhabi‘s IMI – which is backed by the UAE’s deputy prime minister and ultimate owner of Manchester City Football Club, Sheikh Mansour bin Zayed Al Nahyan – has for several months owned a call option intended to convert a £600m debt into equity ownership of the media assets.

That deal has been rendered impossible, however, by the government’s adoption of legislative changes to prevent any ownership of British national newspapers by investors connected to foreign states.

Lucy Frazer, the culture secretary, has also said she is minded to refer the RedBird IMI takeover of the Telegraph titles to an in-depth inquiry by the Competition and Markets Authority.

The complexity of the ongoing sale process could act as a deterrent to potential bidders, given that restrictions imposed on RedBird IMI and the Barclay family, the newspapers’ beneficial owners, could impair buyers’ ability to undertake due diligence.

The fate of the Telegraph, historically a staunch Conservative Party backer, has been up in the air for close to a year after Lloyds Banking Group seized control of its parent companies after the Barclays fell behind on debt repayments.

Since then, a number of bidders including the Daily Mail proprietor Lord Rothermere and the GB News shareholder Sir Paul Marshall have shown an interest in buying the titles.

Sky News revealed this week that Sir Paul is preparing to step down from the board of the parent company of GB News, the television news channel he has helped to bankroll, as he prepares a fresh bid for the Telegraph.

RedBird IMI’s £600m takeover has been vehemently opposed by Telegraph journalists and Conservative politicians from both houses of parliament.

It had sought to defuse controversy over the deal by offering legally binding assurances over editorial freedom, and in January restructured its bid to incorporate a new UK holding company which would own the Telegraph titles and Spectator magazine.

A trio of independent directors of the Telegraph’s holding company were parachuted in by Lloyds Banking Group last year after the lender seized control of the newspapers from their long-standing owners, the Barclay family.

However, the sale process was pre-empted by RedBird IMI repaying £1.16bn of loans owed by the Barclays to Lloyds, with £600m used to purchase the call option and the remainder as a loan secured against other family assets, including the online retailer Very Group.

Earlier this year, the independent directors appointed to oversee the sale of The Daily Telegraph were warned by Ms Frazer that the removal of the newspaper’s two most senior executives breached a government order – and that any subsequent transgression could result in a multimillion pound fine.

RedBird IMI and the DCMS declined to comment.

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