Series
Blogs
Series
Blogs
The Digital Markets, Competition and Consumers Act 2024 (DMCC) introduced amendments to the Enterprise Act 2002, which will now prevent foreign state powers from gaining control or influence over UK newspaper enterprises. These provisions came into force on the day the DMCC was passed (23 May 2024) and apply retrospectively to capture any relevant merger situation that has taken place since 13 March 2024 – as well as those going forward.
This new law was the UK Government’s response to RedBird IMI’s proposed acquisition of the Telegraph Media Group – a well-known UK newspaper enterprise. Concerns were reported in the media over the joint venture between Redbird Capital and IMI, which is about three-quarters funded by Abu Dhabi. Whilst this deal has now fallen through, the amendments have become law.
Alongside the new regime, the Department for Culture, Media & Sport (DCMS) is currently consulting on draft regulations, which will introduce some limited exceptions to the prohibition. In this post, we look at the new provisions, as well as the proposals being consulted on by DCMS.
The amendments create a foreign state intervention (FSI) regime which allows for the Secretary of State to reverse or prevent any foreign state (or a person associated with a foreign state) from gaining ownership, influence, or control over a UK newspaper enterprise. To do so, the following process must take place:
The new provisions include a wide definition of “foreign power”, which includes (but isn’t limited to) senior members of a foreign government and officers of a governing political party acting in their private capacity, as well as heads of foreign states, governments, and the public bodies controlled by foreign states, including associated persons.
The definition of “newspaper” includes a news publication circulated wholly or mainly in the UK or a part of the UK on any periodic basis.
The government committed to bringing forward regulations which would provide for exceptions to these rules, so as not to have any undesired effects. Prior to the DMCC gaining royal assent, DCMS published draft regulations for comment, which set out three exceptions to the prohibition of foreign state ownership in UK newspaper enterprises:
1. Exception for state owned investment vehicles and definition of state-owned investors (SOIs). DCMS has proposed an exception for investments made by state-owned investment vehicles up to (and not beyond) 5% of the shares or voting rights in a UK newspaper enterprise.
However, to allow for investments in a diversified group of enterprises, DCMS has also proposed to permit an SOI to take a shareholding of up to 10% if: (i) the newspaper business accounts for 20% or less of the group’s global turnover (in the most recent 12 month qualifying period); and (ii) the SOI has no shareholding at all in the company that directly operates the UK newspaper business.
Five conditions have been proposed by DCMS, to define a ‘State owned investor’, which are:
(i) that the SOI is wholly owned or controlled by a foreign power (i.e. the foreign power holds 100% of the shares or voting rights or has the ability to appoint or remove a majority of officers).
(ii) that the trustees of a trust or members of a partnership or unincorporated association which holds the same rights as (i) in an SOI, or directs or controls the SOI’s activities, are subject to direction or control of a foreign state.
(iii) that the principal activity of the SOI is to make or manage investments and that this includes investments in other countries or territories.
(iv) that the principal source of funds for the investment by the SOI is the foreign power.
(v) that the sole purpose of the investments is to benefit the foreign power or its people, or in the case of a public pension fund, the fund’s beneficiaries.
2. Exception for associated persons investing in retail investment products. DCMS has proposed an exception for any person deemed to be an associated person (as defined under s127(4)(a)-(c) of the Enterprise Act 2002) in relation to all investments held in a UK or an overseas investment fund (including products such as Individual Savings Accounts and Self Invested Personal Pension Schemes).
This exception has been put forward to avoid a situation where an associated person cannot invest in e.g. an ISA, where that fund holds shares in a newspaper enterprise. DCMS has proposed that the exception will cover all UK and international investment funds, provided that said funds have a genuine diversity of ownership.
3. Exception for small shareholdings (up to 0.1%) by an associated person. DCMS has also proposed an exception for associated persons (as defined in the Enterprise Act) who hold no more than 0.1% of the shares or voting rights in a UK newspaper owner.
The rationale behind this proposal is that a low shareholding of this level poses very little risk of granting the person any tangible influence over the enterprise.
DCMS has extended its consultation until 9 July 2024, and welcomes views on its proposals, as well as any wider views on what the current draft regulations should consider. Stay tuned for any further updates.
6 June 2024
Up next