The investor behind an ambitious expansion of rugby union is preparing a bid for The Telegraph that would make it the first national news outlet owned by a private equity firm.
CVC, which manages £164bn and owns stakes in Premiership Rugby and the Six Nations, is lining up for the first round of an auction this week, City sources said.
The plans are not finalised and there is no certainty that CVC will make a firm offer. They revive an interest in The Telegraph that dates back two decades, however.
In the 2004 auction won by the Barclay family, CVC held talks about backing a bid for The Telegraph by Lord Rothermere, the owner of the Daily Mail.
He pulled out of the current auction last week, after judging that the Labour election victory meant his bid would be unlikely to clear regulatory and political hurdles.
CVC’s new bid is independent of Lord Rothermere and would be presented as backing for The Telegraph’s existing management in the accelerating shift towards digital publishing.
Private equity firms often look to property sales and staff cuts to boost returns, but the Barclay family has already exhausted many of these strategies in their hunt for cash to prop up their debt-laden empire.
Buyouts also sometimes pile debt and interest costs onto their targets. Such a strategy by CVC would be likely to stoke nervousness among Telegraph executives as they navigate the final years of print newspaper publishing accompanying pressure on company finances.
The financing behind its bid is said to demand relatively conservative borrowing against The Telegraph’s underlying earnings of £60m, however.
It may also include a chance for the seller, RedBird IMI, to remain invested as a passive minority shareholder.
CVC is likely to seek to pay less than the £510m price the Abu Dhabi-backed fund paid for The Telegraph last year, but could seek to smooth the deal with the opportunity to cash in on future growth.
An investment in news publishing would mark a further step into the limelight for CVC after it became a publicly listed company via an Amsterdam float in April.
The previously secretive firm, which is headquartered in Luxembourg and run by a close-knit group of wealthy partners, opened up its books to raise £1.7bn to fuel further corporate expansion.
It is understood that CVC’s interest in The Telegraph is spearheaded by the firm’s sports, media and entertainment team.
As well as its stakes in rugby competitions, which are intended to drive the sport’s growth, the portfolio includes an investment in top-flight Spanish football and ownership of the British videogame developer behind RuneScape.
RedBird IMI attempted to take control of The Telegraph via a complex debt deal with the Barclay family last year. It has put it back on the block after it was thwarted by new laws banning foreign state ownership.
Under its plans, The Telegraph would have been managed by the US private equity firm RedBird Capital majority owned by Sheikh Mansour bin Zayed Al Nahyan, the vice-president of the United Arab Emirates.
The new auction was launched last month and a deadline for first round bids has been set for Friday. They are expected to be sifted down to a shortlist before a final round of bidding later in summer.
RedBird IMI paid £600m for a package containing The Telegraph and The Spectator magazine in an ambush which derailed an auction by receivers acting for Lloyds Banking Group.
The bank had seized control after losing patience over the Barclay family’s overdue borrowing, which was repaid in full following the unconventional deal with RedBird IMI.
If it is unable to recoup its outlay in the auction, the fund has indicated that it could seek to “sell” the business to another vehicle managed by RedBird Capital that would comply with foreign state ownership laws.
It is unclear whether the firm’s other funds may have links to sovereign wealth that could fall foul of the new legislation.
RedBird IMI has said that interest is “extremely strong”. Lord Saatchi, the advertising executive, has been linked with a bid in recent weeks alongside his partner Lynn Forester de Rothschild. They have not commented.
Nevertheless, the emergence of CVC bolsters a field of bidders for The Telegraph that has appeared to be thinning.
As well as DMGT’s withdrawal, rumours have circulated that Sir Paul Marshall, the co-owner of GB News, has narrowed his interest to focus on The Spectator. His representatives declined to comment.
The German publisher Axel Springer, owner of Politico, expressed interest in last year’s auction but was last week reported to be lined up for a break-up by its private equity backer KKR.
No private equity firm has acquired a UK national news outlet since the buyout industry emerged in the 1980s.
Several lined up to bid in the 2004 auction of The Telegraph ultimately won by the Barclay family. They included Apax Partners, which at the time owned a host of publishing assets, and 3i, the FTSE 100 private equity firm.
In the intervening two decades news publishers have been battered by a digital revolution in which lucrative print advertising evaporated and shaken managers initially failed to grasp emerging opportunities online.
Private equity firms, who typically aim to sell companies onward within five years of acquisition, have tended to avoid the news industry as publishers hunted viable business models. The growth of digital subscriptions in recent years has rekindled interest.
CVC declined to comment.