Buyers challenge UK government’s decision to block Truphone deal

The prospective buyers of UK telecoms group Truphone, which is owned by Roman Abramovich and Russian associates, are challenging the British government’s decision to block the deal while it conducts a national security probe.

Hakan Koç, a German businessman who founded the used-car company Auto1, and his business associate Pyrros Koussios, a former telecoms executive and private equity investor, made an offer to buy the company for £1 in May, after sanctions imposed on Russian billionaire Abramovich threw the future of the group into doubt.

On Thursday, a day before Koç and Koussios were hoping to close the transaction, the purchase was “called in” under the UK’s new National Security and Investment Act, which gives the government the power to block or unwind deals it believes pose a risk to national security, according to people briefed on the situation.

The Department for Business, Energy and Industrial Strategy also issued an interim order to halt the deal while it makes its investigation, the people said.

Lawyers for the prospective buyers wrote to the government’s Investment Security Unit on Friday saying that the interim order increased the likelihood of Truphone entering insolvency, which could lead to hundreds of job losses, according to people with knowledge of the details.

They also said that delaying the deal meant Truphone would remain under the ownership of sanctioned individuals.

The business currently faces severe challenges to its cash flow and will lose customers and commercial viability if new capital is not invested soon, the lawyers noted in their letter.

Earlier this year Truphone appointed FRP to find a buyer for the company, which has received more than £300mn in investment from Abramovich and his two Russian business partners Alexander Abramov and Alexander Frolov. The company, which allows customers using its digital SIM cards to avoid roaming charges, was valued at £410mn in 2020 and has recorded 15 consecutive years of losses.

People close to the deal believe the government’s decision is linked to a contract Truphone has with British telecoms group BT that allows users to access their digital SIM card remotely. This process requires access to BT data.

The new owners are willing to avoid activities related to contracts with BT that have given rise to national security concerns until cleared by the government, according to one person with knowledge of their position.

The person added that the government could go ahead with its national security probe without blocking the deal.

The decision to delay the Truphone deal comes at a time of increased scrutiny of foreign involvement with UK telecoms assets. In May, the government called in French telecoms group Altice’s majority stake in BT, which increased from 12 to 18 per cent late last year.

The national security act gives the business secretary the power to call in any transaction they “reasonably suspect gives rise to or may give rise to a risk to national security”, according to a business department document.

If deemed “necessary and proportionate”, they can then “impose certain conditions, block or unwind it completely”.

According to its first interim report on the new powers, between January and March this year the UK government was notified about 222 transactions that may have an impact on national security, of which 17 were called in.

The business department said in a statement: “The Government routinely monitors acquisitions across the economy in case of national security concerns.”