Abu Dhabi-backed RedBird IMI set to withdraw from Telegraph takeover

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Abu Dhabi-backed investment group RedBird IMI is preparing to formally withdraw its bid to take over the Telegraph as early as next week, according to people close to the deal, following months of talks with the UK government.

RedBird IMI’s takeover of the national newspaper — along with The Spectator magazine — was part of a deal to allow previous owners, the Barclay family, to repay debt owed to Lloyds Banking Group. It was in effect blocked by the government earlier this year, although the acquisition process has continued as RedBird IMI has considered its next steps. 

RedBird IMI spent £600mn buying debt secured on the media business from Lloyds, which carried with it the right to convert into ownership.

It is now aiming to finalise a structure with ministers this week that will allow the Telegraph and The Spectator to be sold, potentially in separate deals. Officials are also seeking to maintain some oversight of the newspaper as the investment group searches for an alternative buyer.

This could involve an extension of existing regulatory conditions, such as maintaining the current structure of the business, and keeping independent directors in place, a person close to the situation said. An agreement is expected next week, according to three people familiar with the situation, which would lead to a formal withdrawal.

Ministers want RedBird IMI to withdraw the bid before the competition watchdog begins a more detailed probe. This would avoid the need for officials to publish all the investigation documents produced so far. 

An initial probe of the deal by media regulator Ofcom concluded there would be significant concerns about allowing Abu Dhabi to be involved in buying a UK national newspaper, despite proposals from RedBird IMI to safeguard the independence of the Telegraph.

The formal withdrawal of the offer will kick off an auction process that is expected to draw bids from parties including hedge fund boss Paul Marshall, Rupert Murdoch’s News UK, and newspaper group National World.

However, RedBird is also prepared to remain as an owner, if bids are lower than the £600mn that RedBird IMI spent.

RedBird IMI has received multiple expressions of interest, according to people briefed on the details. Advisers at Robey Warshaw are mainly dealing with UK bidders while Raine is concentrating more on international investors.

People close to the company said RedBird was also open to bringing in investors to replace all or part of the money provided by Abu Dhabi’s IMI. RedBird IMI has about three-quarters of its funding from Abu Dhabi, although it has insisted that it is operationally separate from its Middle Eastern investors.

As part of this strategy, RedBird has held informal talks with a number of potential partners about a joint venture, including Lord Rothermere’s DMGT, which owns the Daily Mail.

A joint venture might potentially address competition concerns raised by DMGT’s involvement. However, people close to the sale process said nothing had been agreed and bankers were still talking to a number of potential buyers and co-investors.

Analysts have said that DMGT would be likely to need extra funding for any solo bid for the Telegraph, however, the RedBird IMI offer has prompted stricter rules on foreign state investment in media assets. 

Officials are close to finalising plans to limit the amount of equity a foreign state can own in any newspaper group to about 5 per cent, according to people close to the talks.

RedBird IMI and DMGT declined to comment.