At the end of May, U.S. private equity firm RedBird Capital reached an agreement to purchase U.K. newspaper the Telegraph for £500 million ($671 million). However, the deal has come in for criticism because of RedBird Capital’s connections to China — and there are calls for a government review.
Complaints about the deal crystallised in the form of a cross-party group of lawmakers sending a letter to culture secretary Lisa Nandy at the start of June. They pointed out that RedBird Capital Chairman John Thornton sat on the advisory council of China’s sovereign wealth fund and held high level meetings with Chinese Communist party figures both this year and last.
Based on that information, they urged Nandy to “initiate a full and transparent investigation into the acquisition,” consider the national security implications of the deal and review Thornton’s “suitability in owning and controlling a UK media outlet.”
Although he was not one of the signatories to that letter, Member of Parliament Iain Duncan Smith has now added to those calls and elaborated on the view that there are national security issues in play.
Writing for the Conservative Home website, Duncan Smith said RedBird Capital is close enough to the Chinese state to breach the National Security Act 2023. He suggested that both Thornton’s personal connections and RedBird’s various connections to high profile Chinese companies like Tencent mean there is cause to believe that Chinese state interests could exert influence over the U.K. in an important way.
“We are not talking about a widget factory or a retail chain. We are talking about a paper that informs voters, influences elections, and helps set the national agenda,” he wrote.
Similar concerns have already seen this deal blocked once already. Last year, an initial bid which was a joint venture between Redbird Capital and United Arab Emirates-backed investment vehicle IMI was pushed back after the previous Conservative government amended the Enterprise Act 2002.
That amendment — which has a reading in the House of Lords next week — allows for government intervention in a deal where a foreign power might have the “ability to direct, control or influence” an organization’s policies or activities, even if no formal ownership or voting rights are held. The result is that the United Arab Emirates’ role in the new bid has been reduced.
However, because the takeover is now being led by the American arm of RedBird Capital, the deal could pass through without additional government scrutiny. The Enterprise Act gives the government a right to intervene, but it doesn’t mean it has to. And as Angus Hanton described in his new book “Vassal State,” the U.K. government tends not to scrutinize American-led deals to the same degree with which it scrutinizes others.
Whether those critical of the deal can convince the government to look at it again will also be dictated by the Labour government’s positioning on China — and here too a change of course looks unlikely.
Foreign Secretary David Lammy’s summary of the Labour government’s (unpublished) China audit emphasized that “China will continue to play a vital role in supporting the U.K.’s secure growth.” As that might suggest, when the U.K.’s foreign influence registration scheme began this month, China was not placed in the top tier threat category.
This maps onto an existing trend. The number of Chinese-backed takeovers blocked by the U.K. government has been in decline since the Labour Party took office. In the Cabinet Office report released last September, no Chinese-backed takeovers of U.K. businesses were blocked or had conditions attached to them in the twelve months prior to the publication of the report.
That figure included decisions not to block or restrict 17 Chinese deals brought in for investigation by the previous Conservative government. By comparison, the previous government blocked or attached conditions to eight Chinese deals in the previous 12-month measurement period.
So, the direction of travel is clear, even if the Labour government is sending out some mixed signals — for instance, accepting the findings of an external strategic review that described China as a “sophisticated and persistent challenge.” The only way things might change is if significant pressure can be mounted against the Telegraph deal and a government sliding in the polls feels it has no choice but to change course. But at the moment this does not look likely.
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