Forcing through a BT takeover of TalkTalk would damage Britain’s standing as a destination for international investment, the Government has been warned.

Ares Management, the US private credit giant which has lent the stricken broadband operator hundreds of millions of pounds, said in a letter on Sunday to officials that the proposed deal would undermine the UK’s pro-business credentials.

BT’s dominance of the UK broadband sector means its takeover would require ministers to override competition laws, with the Government preparing to invoke pandemic-era laws to help rescue the company.

However, senior figures at Ares have told ministers that bending the rules in this way would seriously damage the UK’s reputation in the eyes of overseas investors.

Labour has made courting international business a key plank of its economic policy since taking power, with Ares’ calls to block the BT takeover likely to test the Government’s approach on the matter.

Ares has a 7pc shareholding in TalkTalk and has lent the business well more than £500m. Since August 2024, it has also provided over £380m in funding to TalkTalk alone. It is also rivalling BT to takeover the debt-ridden broadband provider.  

Ares wrote to ministers, Ofcom and the Competition and Markets Authority (CMA) on Sunday warning that a BT takeover of TalkTalk would have serious regulatory and competition concerns, according to sources.

In the letter, it warned a BT acquisition would weaken critical incentives to invest in building out the UK’s network infrastructure as well as undermining UK competition rules.

The Wall Street giant also accused BT of stifling a rival bid from private equity firm Epiris and Ares, and abusing its position as a supplier to remove competition from the market.

Reports of a fresh offer

It was reported on Sunday that BT was preparing a new offer for TalkTalk after the struggling broadband provider rejected its initial approach.

BT had been seeking to push a deal over the line as soon as Monday. However, no price has been decided and competition issues are still to be agreed, according to the Financial Times.

Ares is expected to sustain heavy losses on its investment, especially if BT swoops in after TalkTalk falls into administration

TalkTalk also owes millions of pounds to BT, but the telecoms giant ranks below Ares in the list of who gets paid first should the company go bust.

City sources said Ares executives believed that BT was attempting to leapfrog Ares in the capital structure and ensure its debts get paid first by offering to acquire the group.