The board of The Daily Telegraph’s parent company has been cautioned by Whitehall officials that any additional violations of a government directive could result in a penalty amounting to millions of pounds.
The government has issued a warning to the independent directors tasked with supervising the sale of The Daily Telegraph that their duties were violated when the newspaper’s two most senior executives were removed. Any further violation of this order could lead to a fine in the millions of pounds.
The Department for Culture, Media and Sport (DCMS) informed Goodwin Procter, the law firm representing the independent board members, in a letter dated last week that culture secretary Lucy Frazer had determined that recent management changes at the broadsheet publisher had violated a requirement that she provide approval for the removal and appointment of Telegraph executives.
DCMS officials stated that Ms. Frazer had decided not to pursue further action regarding the breaches, but warned that “any further breaches may result in enforcement action, including the imposition of a penalty… [which] may be up to 5% of the total worldwide turnover of the enterprises owned or controlled by the person upon whom it is imposed,” according to sources with knowledge of the letter’s contents.
Based on the financial results for the period ending December 31, 2022, Telegraph Media Group generated a revenue of slightly more than £254 million. Consequently, a potential fine of £12.5 million could be imposed solely on that basis.
A month after Anna Jones, a former executive at Hearst UK, was appointed to succeed Nick Hugh as TMG’s CEO, the letter was dispatched.
Just weeks earlier, TMG’s finance chief, Cormac O’Shea, departed the organization.
In addition, the letter is believed to have stated that the directors’ failure to seek Ms. Frazer’s prior approval violated the government’s Pre-Emptive Action Order, which was imposed last autumn, and Ms. Jones’s appointment accordingly.
A company source stated that they considered Mr. Hugh and Mr. O’Shea’s departures to be an “ordinary course of business” and, as such, did not include them in the initial order.
According to the source, a subsequent directive issued by Ms. Frazer after the departures of the executives was modified to eliminate the “ordinary course of business” provision.
The latest development in a complex procedure that will determine the future ownership of two of the most influential newspapers in Britain is the intervention of the culture secretary.
Ms. Frazer has instructed Ofcom and the Competition and Markets Authority to provide her with reports by next Monday regarding their assessment of whether the acquisition of the Telegraph titles by RedBird IMI, an Abu Dhabi investment vehicle supported by the state, would violate press freedom.
Conservative politicians and journalists from the Telegraph are vehemently opposed to the £600 million transaction from both chambers of parliament.
The US media investor RedBird, led by former CNN president Jeff Zucker, owns a minority stake in RedBird IMI. IMI, which is financed by Sheikh Mansour bin Zayed Al Nahyan, the ultimate owner of Manchester City Football Club, owns the majority stake.
By providing legally binding assurances regarding editorial freedom, it attempted to defuse controversy surrounding the transaction. Additionally, in January, it restructured its proposal to incorporate a new UK holding company that would acquire the Telegraph titles and Spectator magazine.
Telegraph Ownership Change Amid Regulatory Scrutiny
The ownership structure of the new entity is identical to that of the previous vehicle, according to sources with knowledge of the situation: 75% ownership by IMI and 25% ownership by RedBird.
At the time of its announcement, a RedBird IMI spokesperson stated, “This modification was implemented to clarify that IMI is a passive investor in the company that will acquire the Telegraph and, as such, will have no editorial or managerial sway over the title.”
Late last year, Ms. Frazer issued an initial public interest intervention notice (PIIN) that subjected competition and media regulators to scrutiny regarding a potential debt-for-equity transaction that would transfer ownership of the titles to RedBird IMI.
The majority of analysts anticipate that the culture secretary will refer the transaction to the CMA for a Phase 2 investigation, which would cause a significant setback by several months and potentially result in its complete rejection.
Due to the takeover’s proximity to a UK general election in which the Tories are likely to be long odds to gain an outright majority, it is considered particularly delicate.
Lloyds Banking Group parachuted in the independent directors of the Telegraph’s holding company last year, following the lender’s seizure of the newspapers from their longtime proprietors, the Barclay family.
An auction ensued for the titles, which piqued the interest of Sir Paul Marshall, a shareholder of GB News and the proprietor of the Daily Mail, Lord Rothermere.
Strategic Shift for Telegraph Acquisition
RedBird IMI, on the other hand, averted the sale procedure by repaying £1.16 billion in loans owed to Lloyds by Barclays. Of this amount, £600 million was allocated towards acquiring a call option to acquire the newspapers, while the remaining balance was secured as a loan against other family assets, including the online retailer Very Group.
According to a spokesperson for the independent directors, they have a fiduciary responsibility to act in the Telegraph Media Group’s best interests, and they intend to uphold this obligation in the future.
The independent directors are led by Mike McTighe, an expert in company turnarounds; Stephen Welch and Boudewijn Wentink, the other two members, possess similar corporate restructuring expertise.
As per the public interest intervention notice (PIIN) issued by Ms. Frazer, RedBird IMI is explicitly forbidden from exerting any form of influence over the titles during the ongoing investigations conducted by competition and media regulators.
