The Culture Secretary has intervened to prevent a fund backed by Abu Dhabi taking control of The Telegraph within days, amid fears of censorship and foreign state influence.
Lucy Frazer issued a Public Interest Intervention Notice (PIIN) to RedBird IMI which will trigger initial investigations by Ofcom and the Competition and Markets Authority (CMA) of the planned takeover.
The regulators have been asked to deliver their reports by January 26.
Ofcom will examine the impact of the deal on the need for accurate presentation of news and free expression of opinion in newspapers.
The CMA will look at legal technicalities and potential competition issues, which are unlikely to be relevant as IMI has only a limited UK presence via its English-language newspaper, The National, and Arabic rolling news channel, Sky News Arabia.
Ms Frazer’s move means that RedBird IMI, which is led by the former CNN chief Jeff Zucker, could face legally binding restrictions on how it is allowed to operate The Telegraph, or even that the deal could be blocked.
In that scenario, a suspended auction would be restarted. It has attracted bidders including a consortium led by the hedge fund founder Sir Paul Marshall and DMGT, the publisher of The Daily Mail. They have been campaigning for ministers to prevent The Telegraph and its sister magazine The Spectator coming under the influence of Abu Dhabi.
MPs this week wrote to the Deputy Prime Minister, Oliver Dowden, urging an investigation on national security grounds as well as the public interest review. A dozen Conservatives called RedBird’s plans a “very real potential national security threat”. The former Foreign Secretary Lord Hague has also separately called for the deal to be blocked.
RedBird IMI is a joint venture between RedBird, a US private equity firm, and International Media Investments (IMI), an Abu Dhabi vehicle backed by the Manchester City owner Sheikh Mansour bin Zayed al-Nahyan. IMI is providing 75pc of the £600m price for The Telegraph and The Spectator.
A spokesman for RedBird IMI said: “We welcome the opportunity to provide the Government with the information needed to scrutinise our deal, and we will continue to cooperate fully with the Government and regulator throughout this process.
“RedBird IMI remains entirely committed to maintaining the existing editorial team of the Telegraph and Spectator publications and believes that editorial independence for these titles is essential to protecting their reputation and credibility.”
In an interview with The Telegraph this week, Mr Zucker said he would resign if there were any suggestion of interference from Abu Dhabi.
He said: “I understand why people have raised questions. All I can say is, they’re misplaced. I am here to say that the editorial independence of The Telegraph is guaranteed.”
Ms Frazer declined to intervene to prevent the first stage of the complicated transaction going ahead. The Barclay family will be allowed to repay a £1.2bn debt to Lloyds Banking Group which will release The Telegraph and The Spectator magazine from the hands of receivers.
The family lost control of the titles in June after failing to repay borrowing which had matured years earlier. They have arranged a £600m loan from RedBird IMI which is structured to be converted to ownership of The Telegraph and The Spectator as soon as possible. It is this second phase of the deal which will be suspended while investigations are carried out.
Ms Frazer came under pressure from Lloyds to allow the debt repayment. It had substantially written down the value of the debt and will now be able to book a profit of hundreds of millions of pounds.
The PIIN issued by Ms Frazer relates only to The Telegraph, as her powers to protect the public interest only cover newspapers. It was not immediately clear whether RedBird IMI will be able to take control of The Spectator sooner.
The Barclay family is preparing to repay Lloyds on Friday or Monday. They have arranged to borrow the balance of their debt to the bank directly from IMI and pledged security over their other businesses, including the online retailer Very.
It is expected that Ms Frazer will use further powers under the Enterprise Act 2002 to prevent the Barclay family regaining influence over The Telegraph while the RedBird IMI takeover is investigated.
Another announcement is expected Thursday or Friday which would mean the independent directors drafted in by Lloyds and led by chairman Mike McTighe would be likely to remain in place until new ownership is settled.
Sir Iain Duncan Smith, the former Conservative Party leader, told The Telegraph: “I think it is vital that national security plays a part in this. This is not an allied nation.
“We have to look at every single factor of the takeover including the threat to national security. The UK security services must be able to decide whether this is a purchase too far.”
Sir John Hayes, the former Tory security minister, told The Telegraph: “The key thing is that there is going to be an inquiry. That’s really good news. The public interest check is an important mechanism by which this can be scrutinised.
“It is good news the Government responded. Let’s wait to see what that says. For me it has always been about concerns of foreign ownership of a major national media organ.”
Alec Shelbrooke, the former Tory defence minister, said: “It is important that people maintain complete faith in printed newspapers. The prevalence of fake news is undermining Western security. All aspects of the takeover must be looked at.”
Alicia Kearns, the Tory chair of the Commons Foreign Affairs Committee, said: “Security concerns are distinctly different to those of protecting our media environment. It is of fundamental importance that both tracks are pursued.”