LetterOne, the investment group backed by Russian oligarchs who are under sanctions, has launched a legal challenge to overturn the decision taken by the UK government on national security grounds to force the sale of its broadband business Upp.
The claim for a judicial review will be a test for the UK’s National Security and Investment Act, which has so far been used only five times to block acquisitions of a business since it came into force at the start of last year. Four of those involved Chinese companies.
In December, Grant Shapps — the UK energy minister who was then business secretary — used the act to order LetterOne to divest its entire shareholding in Upp, citing “a risk to national security” given the “ultimate beneficial owners of LetterOne Core Investments and Upp’s expanding full fibre broadband network”.
LetterOne is part-owned by sanctioned Russian oligarchs Mikhail Fridman and Petr Aven, although their shareholdings account for less than half of the group. It has cut ties with the businessmen to remain outside of the sanctions regime.
The Russian owners were cut off from decision-making and operations, with shares effectively frozen and dividends stopped. Staff with personal links to the Russians left.
LetterOne acquired Upp in 2021 as part of a promised £1bn plan to build a regional British broadband network to compete with BT that aimed to cover 1mn premises in eastern England by 2025.
The UK’s decision in December marked the first time that the National Security and Investment Act had been used to block a deal with links to sanctioned Russian oligarchs.
LetterOne, which is not sanctioned and owns other UK businesses such as retailer Holland & Barrett, has filed a claim seeking judicial review of the final order issued by the government, arguing that its ownership of Upp does not pose a national security risk.
LetterOne confirmed the legal action.
“L1 is not sanctioned and has taken fast, decisive action to put in place strong measures to distance itself from its sanctioned shareholders,” the company said. “They have no role in L1, no access to premises, infrastructure, people and funds or benefits of any description.”
It added that Upp was overseen by Ofcom and “already has processes in place that remove any perceived threat to national security”.
This included a UK leadership team, only British, US and EU personnel on the board, and security protocols about access to information, data and sites of critical technological infrastructure, LetterOne said.
The UK government said: “The energy secretary made a final order in December under the National Security and Investment Act, requiring LetterOne to divest Upp.”
The act was brought in at the start of 2022 to overhaul rules governing takeovers of UK companies, which included the ability to retrospectively order the sale of assets that were deemed of risk to national security.
This week, Cabinet Office minister Oliver Dowden told the Financial Times that he would bring greater transparency over the decision-making process of the legislation, which had been criticised by deal makers for being a “black box” process that left them uncertain over whether certain deals might be at risk.