Abu Dhabi state-backed fund moves to take control of Daily Telegraph

An Abu Dhabi state-backed vehicle has moved closer to taking full control of The Daily Telegraph just hours after the launch of a regulatory probe that prevents it from removing key journalists from their posts.

Sky News has learnt that RedBird IMI has given the newspaper's board and the government notice of its intention to activate a call option that will convert loans secured against the Telegraph titles and Spectator magazine into shares.

The move was communicated to key stakeholders late on Friday, and came as nearly £1.2bn was being transferred to an escrow account prior to its release to Lloyds Banking Group early next week.

A Whitehall source confirmed this weekend that the government had been notified about RedBird IMI's move to exercise its option to take control of the shares.

A person close to the Abu Dhabi-based investor, which declined to comment formally, said it had already made it clear that it would seek to convert the loans "at an early opportunity".

The activation of the call option does not mean the broadsheets fall under the immediate control of RedBird IMI, insiders pointed out on Saturday.

Lucy Frazer, the culture secretary, issued a Public Interest Intervention Notice (PIIN) on Thursday which has triggered an inquiry by Ofcom and the Competition and Markets Authority.

Pressure has been mounting in recent weeks from Conservative politicians for the takeover of the traditionally Tory-supporting Telegraph newspapers by a foreign state-backed entity to be probed under public interest and national security laws.

Sir Iain Duncan Smith and Lord Hague of Richmond, two former leaders of the party, have been among those who have called for scrutiny of the deal.

RedBird IMI has insisted that it would preserve the newspapers' editorial independence and offered to give the government a legally binding assurance of this intention.

RedBird IMI has also pledged not to complete the acquisition of the media assets until it has received government approval.

On Friday, Ms Frazer confirmed a Sky News report that she would preserve the independence of the Telegraph during the investigations by making an Interim Enforcement Order preventing the Barclay family or RedBird IMI from interfering in their operation.

The IEO prohibits the removal or transfer of key Daily Telegraph journalists or any further change of ownership.

Both the family and RedBird IMI have agreed to the restrictions.

The notice of the intention to exercise the call option takes two of Britain's most influential newspapers a stage closer to a change of ownership for the first time in nearly 20 years.

The Barclay family, which has owned the Telegraph since 2004, has been in dispute with Lloyds for years about the repayment of a £700m loan and hundreds of millions of pounds in interest.

Sky News revealed on Friday that Lloyds is preparing to distribute a £500m-plus windfall to its shareholders next year as a result of its ability to recover a loan in full that it had long since regarded as impaired.

Ms Frazer is seeking regulators' responses before the end of January, after which the takeover of the broadsheet newspapers could be approved or blocked.

RedBird IMI is funded in large part by Sheikh Mansour bin Zayed Al Nahyan, the owner of Manchester City, has agreed that a trio of independent directors, led by the Openreach chairman Mike McTighe, will remain in place while the inquiries is carried out.

RedBird IMI's move to fund the loan redemption has circumvented an auction of the Telegraph titles which has drawn interest from a range of bidders.

The hedge fund billionaire and GB News shareholder Sir Paul Marshall had been agitating for the launch of a PIIN.

The Telegraph auction, which has also drawn interest from the Daily Mail proprietor Lord Rothermere and National World, a London-listed local newspaper publisher, is now effectively over.

Until June, the newspapers were chaired by Aidan Barclay - the nephew of Sir Frederick Barclay, the octogenarian who along with his late twin Sir David engineered the takeover of the Telegraph in 2004.

Lloyds had been locked in talks with the Barclays for years about refinancing loans made to them by HBOS prior to that bank's rescue during the 2008 banking crisis.