By Paul Sandle
LONDON (Reuters) -Britain said on Tuesday it would refer the UAE-led takeover of the Telegraph for a lengthy review, a move that will effectively kill the deal because a law banning foreign governments owning newspapers is due to come into force in coming months.
Abu Dhabi-backed RedBird IMI (LON:IMI) took control of the Telegraph titles and the Spectator magazine in December when it helped repay the Barclay family's 1.2 billion pound ($1.5 billion) debt to Lloyds (LON:LLOY) Bank, but the deal needs regulatory approval.
British lawmakers and journalists have vehemently opposed the UAE's takeover of the Telegraph, which is nicknamed the "Torygraph" for its long-standing support for the right-leaning Conservative, or Tory, Party. They say the acquisition of one of Britain's most famous newspapers by a foreign state, particularly the UAE, would threaten press freedom.
In response, the government said last week it would legislate to stop foreign states from owning newspapers.
Media Secretary Lucy Frazer, who was examining the takeover's compliance with competition and media ownership rules, said on Tuesday she was minded to refer it to a lengthy inquiry on the grounds of accurate news presentation and free expression.
Media regulator Ofcom had found that Abu Dhabi's IMI may have an incentive to influence "the accurate presentation of news and free expression of opinion in the Daily Telegraph and the Sunday Telegraph newspapers", she said.
The parties have until March 25 to make representations before she refers the deal to the Competition and Markets Authority.
The contest for ownership of the Telegraph Media Group is playing out against the backdrop of an unpopular Conservative Party, led by Prime Minister Rishi Sunak, that is set to lose the next election expected later this year, according to polls.
Frazer said the ban on foreign governments owning newspapers would come into force in the next couple of months.
"If the Telegraph case is still live, it will affect it," she told LBC Radio earlier on Tuesday.
RedBird IMI, run by former CNN boss Jeff Zucker and with the majority of its funding from Abu Dhabi, did not immediately respond to a request for comment.
($1 = 0.7881 pounds)