Consultation outcome

Clifford Chance LLP

Updated 30 October 2025

I write on behalf of Clifford Chance LLP in response to the Consultation on the draft Enterprise Act 2002 (Mergers Involving Newspaper Enterprises and Foreign Powers) (No.2) Regulations 2025 (the Draft Regulations).  Our response is limited to the following points:

Indirect holdings test

Neither the current exemption SI (2025/922) nor the Draft Regulations properly address the indirect holdings test in paragraph 9 of the new Schedule 6B of the Enterprise Act 2002 (EA), as inserted by Schedule 7 of the Digital Markets, Competition and Consumers Act (DMCCA).

To illustrate this, take the example of a State-owned investor (meeting the conditions in paragraph 2C of the Draft Regulations) which acquires a 0.2% interest in a company that holds a 0.1% interest in another company, which in turn holds a non-controlling shareholding of 16% in a UK newspaper owner.  The operation of the Indirect Holdings Test means that the State owned investor will be treated as having indirectly acquired the full 16% interest in the UK newspaper enterprise, because it sits at the top of a chain of companies that are connected by the holding of any shares or voting rights, no matter how small, and is therefore treated as holding the entire interest of the company at the bottom of the chain.   This is because paragraph 9(2) and 9(3) of Schedule 6 EA provide that a person at the top of a chain of shareholdings is treated as indirectly holding shares or voting rights of the person at the bottom of a chain of shareholdings if all the companies in the chain are connected by “any shares or voting rights”, i.e. no matter how small the size of the shareholding.  While it may be possible to interpret paragraph 9 as being inapplicable to the test in paragraph 2B, on the basis that paragraph 9 applies to “foreign powers” not state owned investors, the absence of any alternative test for indirect holdings of state owned investors means that there is a substantial likelihood that a court would not accept that interpretation.

Consequently, the acquisition of an indirect interest in the above example would likely be treated by a court as falling outside the scope of the exemptions in paragraph 2B of the Draft Regulations (and paragraph 2B of SI 2025/922) – as the State-owned investor would be treated as having indirectly acquired 16% of the newspaper, so above the 15% threshold.  This is despite the fact that the 0.2% interest actually being acquired by the State owned investor (in a company that itself has only 0.1% of the shares in the company below it in the chain) is well below the 15% threshold that would exempt the shareholding if it were held by the State-owned investor directly in the newspaper owner.  From our previous discussions regarding the scope of the exemption, we understand that it is not the government’s intention to exclude these kinds of indirect holdings from the scope of the exemption. However, the proposed changes on which the government is consulting do not address this point.  Consequently, we recommend that the government exercises its power under paragraph 15(1)(b)  of Schedule 6B to “change (by increasing or decreasing) the proportion of shares or rights which is to be held by persons in a chain of persons for the purposes of determining whether shares or rights are held indirectly.”  We have made some suggested drafting changes below, which would need to apply retrospectively (i.e. as having come into force on 31 March 2024).

[To be inserted immediately after sub-paragraph (1C):

For the purposes of sub-paragraph (1C) a state owned investor holds a share or voting right “indirectly” if the state owned investor has a qualifying stake in a person and that person—

(a) holds the share or voting right in question, or

(b) is part of a chain of persons—

(i)each of which (other than the last) has a qualifying stake in the person immediately below it in the chain, and

(ii)the last of which holds the share or voting right.

For the purposes of [the sub-paragraph above, a person (“A”) has “a qualifying stake” in another person (“B”) if—

(a) A holds more than 15% of the shares or voting rights in B,

(b) A is a member of B and has the right to appoint or remove more than 15% of the officers of B,

(c) A is a member of B and controls alone, or pursuant to an agreement with other shareholders or members, more than 15% of the shares or voting rights in B, or

(d) A has the right or ability to materially influence the policy of B, despite not being within paragraph (a), (b) or (c).

This wording effectively mirrors the wording of paragraph 9 of Schedule 6B, but (i) applies it to state owned investors instead of foreign powers and (ii) makes the relevant threshold 15% of shares, voting rights or boards seats instead of “any stake” or board seat.  This means that indirect holdings of foreign powers that are not acquired through state owned investors will continue to be subject the test in paragraph 9 and so create a duty of the Secretary of State to intervene, no matter how small the indirect interest, or how far up a chain of shareholdings it sits (as explained in our response to the previous consultation, that seems to us to create a duty with which it is impossible to comply, but understand that the government has already decided to maintain that position).   Note that the last provision in our suggested wording (“the right or ability to materially influence the policy of B”) differs from the wording in paragraph 9 (which refers to the “ability to include or control B”). This  is necessary because, while paragraph 2(B)(1) of the exemption SI provides that a foreign power will does not “control or influence the policy of a newspaper owner” (emphasis added) if the exemption conditions are met, it does not appear to change the definition of control in paragraph 1 of Schedule 6B insofar as it applies to a “person” that is not a newspaper owner, such that the holding of “any of the” shares or voting rights (no matter how small) would still be considered to confer control.  Moreover, the provisions of the EA that deal with the foreign powers newspaper regime do not provide for any alternative test for control or influence, other than the negative test for control in paragraph 2(B)(1) and applying that test would be circular and redundant (i.e. it would effectively be stating that a state owned investor would be treated as not having control or influence if it does not have control or influence).  We therefore suggest aligning the test for influence in this limb of the test with the test for material influence in s.26 EA.

The proposed notification obligation and indirect holdings of SOIs of different countries

It is unclear how the proposed exemption for direct holdings of 5-15% that are notified to the government (in the new paragraph 1(1C)) interacts with the proposed aggregation of holdings of SOIs of different countries (in the new paragraph 1(3)).  In particular:

• If an SOI from country A acquires a direct interest of 10% and an SOI of another country already has a direct interest of 6%, then it appears that the exemption will not apply, even if the Country A SOI notifies its interest to the government.  This appears to be the intention, but should be clarified in guidance, as SOIs will often be unaware of the identities of other investors and should therefore be put on notice that a notification alone will not necessarily give them legal certainty that they are exempt (such guidance should also highlight the possibility that, even if the exemption for notified interests applies, the notifying SOI may cease to be exempt in the future, if another SOI subsequently acquires an interest in the newspaper owner, assuming that is the government’s intention).

• If an SOI from country A acquires a direct interest of 10% and an SOI of another country already has an indirect interest of 6%, then it is unclear whether the exemption will apply, as the new sub-paragraph 4 provides only that their respective holdings are “to be treated as if they were a single holding of shares or voting rights” and does not specify whether they are to be treated as a direct holding.   If they are to be treated as a single direct holding, then it appears (as per the bullet point above) that the exemption will not apply.  But if they are to be to treated as a single holding that is a mix of both a direct holding and an indirect holding (which would actually be the case), then the exemption would still apply, because the SOI’s direct holding remains below 15%.  We favour the latter approach, because SOIs can agree with the target company and other shareholders that no other SOI will be permitted to acquire a direct shareholding, whereas it is impossible for an SOI to contractually protect itself from the possibility that an SOI from a different country acquires an indirect holding.  If the government agrees with that approach, we suggest adding another sub-paragraph after sub-paragraph 4 to provide that “If a state owned investor is treated as holding a single holding of shares by virtue of sub-paragraph 4, any indirect holdings of shares or voting rights held by a state owned investor of a different country shall not cause the first state owned investor to be treated as holding, directly, more than 15% of the shares or voting rights in a newspaper owner for the purposes of the exception in sub-paragraph (1C).”

Guidance on the definition of a state owned investor

As regards the forthcoming guidance, we recommend that it clarifies that the requirement in Condition 4 - that “the principal source of the funds for the overseas investments is the foreign power or another foreign power of the same country or territory as the foreign power” – is not intended to exclude State-owned investors that have received initial funding from a foreign power in the past, but now derive their funding for future investments primarily from the returns on past investments.