Maxwell, The Outsider

by Tom Bower

  During 1968, as Moppel and another accountant, George Hazard, grappled to organise the accounts, both became disenchanted with Maxwell's style and especially with his interference in their work. As in the affairs of Pergamon, Maxwell was reluctant to allow his employees to dictate to him how the financial position of a company which he owned should be presented.

  At that time, no accountant was more aware of Maxwell's interest in his professional decisions than Peter Bennett, Pergamon's financial director. On 2 September 1966, Bennett wrote to Maxwell two memoranda about the purchase of Newnes. Although the binding of the Chambers encyclopaedias was still not completed and few sets had been sold, Bennett reported in the first memorandum that the 'net profits' amounted to £105,000 and in the second that they would reach £222,000. How Bennett arrived at those unrealistic figures is subject to dispute, although their effect on the overall image of Pergamon's profits was extremely favourable. When asked about the second memorandum in 1970, Maxwell recalled that he had 'honestly believed' that the profits were 'properly made' and emphasised that 'Mr Bennett took the initiative in these matters' supported by Chalmers Impey, Pergamon's auditors. Bennett admitted that his views were 'an error of judgement on my part', but he added, 'my recollection is that these views were heavily influenced by Mr Maxwell'. Maxwell also believed, according to Bennett, that the £1 million he had paid for Chambers was £200,000 less than it was truly worth. He wanted that money reflected in the accounts. Bennett claims that he 'thumped the table and said: "Tell me where the £200,000 profit is.'"

  It also fell to Bennett to prepare Pergamon's annual report for 1968. This stated that both Pergamon and BPC had been paid two dividends by ILSC. In December 1967, each had been paid £112,000 and in June 1968 each was to receive £187,000. Although both parent companies immediately returned the dividends to ILSC in the form of loans, the payments as presented in official reports effectively concealed the chaos at ILSC. Moppel and the accounts department did not know whether ILSC was even earning any profits on which to pay a dividend; although by April 1968 they realised that whatever the profits these were considerably lower than officially anticipated.

  By mid-1968, Maxwell suspected that ILSC was in serious difficulties and that the bad reputation earned by the encyclopaedia salesmen was reflecting upon him. In one attempt to stem the criticism, Maxwell appeared on BBC Television's Braden’s Week, but when surprised by the concrete examples of abuse, agreed to investigate the complaints. Maxwell blamed in particular Le Bas and his Australian manager, Rod Jenman. In Australia, it was said, the list of new customers could be read off the tombstones in the Sydney cemeteries. The situation, recalled Maxwell, 'was absolutely disastrous' and in the summer of 1968 he fired both men and three other senior officials for alleged incompetence (although the report of the Department of Trade and Industry inquiry would state that Maxwell's allegations were erroneous). Maxwell took over ILSC's daily management, which - combined with his many other interests - placed a hugh burden upon him but did not stop his repeated public recommendations about how Britain's sluggish economy could be improved nor his boasts about his own qualifications for the task.

  One example that year followed the collapse of Craven Insurance, a company which sold motor-car policies. A winding-up petition was presented in the High Court by the Board of Trade but to the government's embarrassment Maxwell counter-petitioned the Court and insisted that the company was in fact solvent. Amid great publicity, he pledged that he would save the insurance policies of 65,000 motorists and promised to inject £200,000 into the company; he would also become the chairman. Few outsiders could understand the motives of a scientific publisher and encyclopaedia salesman who was also a Labour politician, a public figure at the forefront of the ‘I'm Backing Britain' campaign, becoming involved in motor insurance. Two months later, Maxwell admitted that Craven was indeed bankrupt and blamed his original intervention on 'grossly misleading facts'. Having lost all his money, he admitted to being 'very angry and very upset for myself, my associates, the policy-holders and the staff. This is certainly my worst disaster ever.' Board of Trade officials were not amused.

  When Maxwell presented himself on 7 June to the Pergamon shareholders for their annual general meeting, his 'worst disaster' was already forgotten. The company's profits, said the chairman, were 'a new record', having increased by 33 per cent after tax during that year. Twenty-one new journals had been published and Pergamon's book list contained six thousand titles, a figure which would increase by six hundred over the following twelve months.

  In the company report, Maxwell stated that ILSC 'is already making a contribution to the profits of your Company'. The source of those profits, reported Maxwell, was the outright sale of 15,000 sets of Chambers encyclopaedias in one year and the anticipated sale of another 15,000 sets in the following year: 'This rate of annual sale is approximately 400% higher than that achieved by the previous proprietors.' The £100,000 paid as a dividend by ILSC and immediately returned was counted as a profit.

  Maxwell also sent shareholders a separate circular which asserted that 'The Board of ILSC has informed Pergamon that sales and profits ... are running at the level forecast. . . .' Since the ILSC board had not given Pergamon that information and since there was, at the time, only a vague notion about ILSC's actual profits, Maxwell was characteristically optimistic. But his assurance had been supported in writing by his financial director, Harold Moppel, who, like the chairman, believed that the recent devaluation of the pound would produce an enormous windfall. The price of Pergamon shares increased accordingly, encouraging the strategy of paying for any acquisitions by offering valuable Pergamon shares. His next major opportunity presented itself in the summer of 1968.

  Jacob Rothschild, then a partner of the merchant bank N. M. Rothschild, was seeking a purchaser for 25 per cent of the shares of the mass-circulation Sunday newspaper, the News of the World. Maxwell, who as we have seen had already made an attempt to take over the Daily Herald, did not conceal his enthusiasm when he telephoned the banker. Tantalisingly, it was an opportunity to launch a take-over bid which, if successful, would transform him in one swoop into a press baron with six million readers. The doors to the Establishment's citadel would open in a manner that mere membership of the House of Commons could never achieve.

  Rothschild was acting for Professor Derek Jackson, an eccentric cousin of the incumbent chairman of the News of the World, fifty-six-year-old Sir William Carr. Jackson, who was enjoying his sixth marriage, divided his time between France and Switzerland and had little affection for the Carr family. Initially, he had offered the shares to his cousin but Carr's price of 28s which Hambros the merchant bankers described as generous was, he felt, derisory and he was not averse to the idea that the family should therefore be discomfited by a take-over bid. Maxwell's agreement to pay 37s 6d for each share (they were trading at 29s 3d on the Stock Exchange) was welcomed as providing a good profit - and an ideal weapon in the family feud.

  Sir William's family had edited the paper since 1891 and controlled 27 per cent of the shares. The remaining 48 per cent were mostly owned by twenty-eight individuals. The City institutions owned a negligible interest. Considering the dismal financial performance of the company under Carr's management during the previous years, Maxwell was confident of persuading an extra 26 per cent of the shareholders to sell to him at the higher price. With his new merchant bank adviser, Robert Clark of Hill Samuel, Maxwell calculated an offer which crucially depended upon the new peaked price of Pergamon shares, since the bid would be based on a swap of Pergamon shares for News of the World shares with a cash alternative.

  By 1968, Carr had been chairman of the group for sixteen years, using the public company to provide the luxuries to which he had become accustomed. His opulent lifestyle, his personal golf courses and his horseracing were all paid out of the company's meagre profits. The News of the World, under his dictatorial control, had continued to publish a consistent cocktail of rape, marital
infidelity and saucy scandal but its circulation had fallen during his tenure by two million copies a week. Similarly, the group's other interests such as Eric Bemrose, a Liverpool subsidiary equipped with the latest gravure machinery for colour printing, and thirty local newspapers had also suffered from his persistent neglect. Carr was unperturbed by his declining fortunes, if only because he was invariably drunk by half-past ten every morning, a habit which had earned him the popular alias 'Pissing Billy'.

  On the morning of 16 October, Robert Clark arrived at the offices of Hambros, who were the advisers to the Can-family, and purposefully slapped an envelope down on Harry Sporborg's desk. The Hambros director found inside Maxwell's offer of 37s 6d for each share, a £26 million bid. 'It came as a total surprise,' recalls an eyewitness. When the news reached Carr, in bed at the time stricken with a serious heart ailment, was unavailable for any discussions throughout the remainder of that day. On the Stock Exchange, the excitement of the unexpected bid pushed the price of News of the World shares immediately up from 29s 3d to a dizzy 40s 3d with expectations that the rise would continue. Few insiders had believed that the Labour MP could mount such an expensive bid.

  While they gathered their thoughts, the Carr family issued a terse announcement that shareholders should do nothing until the board had properly considered the offer with Hambros. For his part, Maxwell told the press that he was confident of success because he believed that some members of the Can-family would desert to his camp; and, to the great surprise of his constituency, he announced that because of the extra commitments he would not seek to be renominated for the next general election. Informally he told newsmen that his aim was to be the 'Arnold Weinstock of the printing and publishing world - a tough business man who can squeeze more profits out of assets than anyone else'. The public comparison did not endear him to the cool, analytical industrialist but it was an adroit one for that 'modernising' era. His real motives were easy to guess: having failed that year to buy Butterworths and having been personally denied the opportunity to purchase a stake in BPC by Max Rayne, this was just his latest attempt to build an empire. But the publisher who had within recent memory supported the prosecution of the publishers of Last Exit to Brooklyn announced that he would not interfere with the paper's salacious editorial policy.

  Nothing Maxwell promised could ever placate Sir William Carr and his long-serving editor, Stafford Somerfield. While Harry Sporborg began to consider the formal defence against the bid, the chairman and the editor published their own considered reply four days after Maxwell's bid was announced. That Sunday, millions read Somerfield's emotional and xenophobic riposte on the News of the World's front page. Headed 'We are having a little local difficulty', Somerfield's piece continued, 'Why do I think it would not be a good thing for Mr Maxwell, formerly Jan Ludwig [sic] Hoch to gain control of this newspaper which, I know, has your respect, loyalty and affection - a newspaper which I know is as British as roast beef and Yorkshire pudding?' Somerfield answered his own question by describing the paper's editorial policy, maintained by just six editors since 1891, as independent but right-wing. Unlike the Carr family, he wrote, Maxwell had no newspaper experience and was a socialist. There was, Somerfield claimed, no chance that Maxwell's promise of impartiality could be maintained. ‘I believe that Mr Maxwell is interested in power and money. There is nothing wrong with that, but it is not everything.' But the possibility of socialist interference was nothing compared to the peril of a foreigner taking control: 'This is a British paper, run by British people. Let's keep it that way.'

  By any standards, Carr had gone beyond the pale. Even his supporters were shocked by this uninhibited display of anti-semitism, especially against a man who had fought so bravely for Britain and was a Member of Parliament. Unfortunately for Maxwell, the tone set by the newspaper reflected the defensive tactics which were to be adopted by Carr's professional advisers in the City.

  By 1968, Maxwell was by no means a stranger in the Square Mile, but this was the first time he had played in the First Division. It was ironic that opposing him was Hambros, the merchant bank which had financed his breakthrough twenty years earlier. But as Sporborg himself had taken the initiative in persuading Charles Hambro to break with Maxwell, any lingering sentiment between the two sides had disappeared by the end of the first day. 'It was', admits one of the bankers advising Carr, 'a thoroughly dirty battle where everyone played as hard as they could.' As far as Maxwell was concerned, however, the players on the other side did not stick to the rules and the City Establishment tilted firmly in Carr's favour.

  In the 1960s the City's reputation still basked under the reassuring slogan 'My word is my bond'. Although its inhabitants' nepotistic hegemony was already under strain, most of those employed in banking and broking were still self-styled patrician gentlemen whose families had known each other for generations. Insider dealing and tax-evasion schemes flourished behind the comforting myth that the City's self-policing mechanisms were preventing any dubious profiteering.

  At the time Maxwell made his bid, the City had experienced two years of unprecedented mergers and take-overs. No less than 70 per cent of Britain's hundred biggest companies had been involved in bids concerning nearly one-quarter of all British firms. British financial and commercial experts, as in other western capitals, were gripped by the fashionable nostrum that only giants, especially the newly termed multinational corporations, could hope to survive the coming technological revolution. The merger-mania had transformed the normally sober clientele of the Pall Mall clubs into replicas of the gunslingers in a Wild West saloon. In their desperate urge to win individual take-over battles, prominent companies, having placed their bid at one price, were rigging the share market, crucially changing the nature of their businesses in the midst of a bid, and giving favoured treatment to the more important shareholders, so destroying the cardinal rule that after a bid is launched all shareholders must be treated honestly and equally. By the end of 1967, any pretence of self-policing had been destroyed as evidence of deception by industrialists and their advisers provoked howls of outrage, yet never any suggestion of punishment.

  To avoid government intervention, the Bank of England finally commissioned four experts to recommend a new code of practice which would guarantee fair play. Among those four draftsmen was Robert Clark, one of Maxwell's advisers in the News of the World bid. In March 1968, a new code was introduced, with a supervisory panel under the chairmanship of Sir Humphrey Mynors, a former deputy governor of the Bank of England. Maxwell's bid was among the first to be governed by the new code, and Mynors, as referee, had to prove that the City was capable of policing a fair fight.

  As a mild-mannered rather uninspired former Bank official, Mynors was 'charming, weak and too much of an insider to be effective'. He was the natural choice of those who hoped that cosmetics would dispose of the political pressure for change. But in the course of two major take-over battles which occurred in the first months of his tenure, Mynors proved incapable of implementing the rules because the new code lacked any penalties which could be used against transgressors. Mynors could only rely upon his own personality, which was no match for the City giants who deigned to sit before him. Maxwell's success would therefore depend upon how ruthlessly both he and his advisers decided to fight Carr's resistance and especially whether they decided to adhere voluntarily to the unenforceable code.

  By the first weekend, despite Somerfield's editorial, the omens were favourable. No rival bid seemed to have materialised and Maxwell announced that he was prepared to raise the value of his bid at a later date. For someone who had for the past three years been the butt of an avalanche of vituperative publicity, there was a pleasant surprise. Most press comment was inclined to see the advantages of the marriage. The Sunday Times's cautiously favourable comment was typical: 'there is no doubt that anyone with Maxwell's seemingly bottomless energy and flair can have a remarkably energising effect on the largest of organisations.'

  Among the ras
h of sympathetic profiles, the Financial Times described Maxwell's charm, individual talent and care for ordinary workers. Anthony Harris sympathetically quoted Maxwell's own description of his earlier purchase of C. & E. Layton, a loss-making printer: "'Nobody believed in the business any more. I talked to the workers individually and in groups, about their craft, the quality they had to offer. And I did something I believe that no other take-over bidder has ever done before. I gave a year's guarantee of employment to every man on the books. Then we got down to it." By the end of the year Layton was making profits again.'

  There was also a lengthy, endearing interview in The Times which suggested that Maxwell, with his 'Frankie Vaughan and Victor Mature' looks, had become a humbled parliamentarian who admitted he had been 'a bit brash' and 'impatient' in the House and had suffered a 'boycott' by other Members. Despite the public image of a 'boastful dictator and a megalomaniac', the profile concluded, he was 'surprisingly mild'. If nothing else, the hefty £200,000 which the bid would cost Maxwell had at least bought him an improved image.

  But at the end of Monday 21 October, just five days after the bid had been announced, Maxwell's fortunes abruptly changed. Sporborg's tactics had taken a new, slightly sordid and definitely terminal twist. Soon after the bid was announced, the banker had placed £750,000 of Hambros' money at the disposal of its stockbrokers with instructions to buy every News of the World share in the market. Sporborg knew that his tactics were a clear breach of the 'spirit' of the new code, which forbade companies to buy their own shares to frustrate a take-over bid, 'but everyone seemed to be making it up as we went along'. By the end of the week, Hambros owned 10 per cent of its client's shares, which Sporborg unconvincingly claimed was an independent stake. The banker had also cleverly secured contractual pledges of support from other shareholders for a payment of 10s each which guaranteed that the Carrs controlled a formidable 48 per cent of the votes. Robert Clark and Maxwell's other advisers were nonplussed. As one of the code's architects, Clark could only advise his own client to obey the rules. Maxwell raised his bid to £34 million, while Clark appealed to Mynors for help. In turn, Mynors summoned Hambros. Sporborg's attitude was simply that 'one could drive a coach and horses through the rule book. He'd pop into Mynors and ask whether he could do something. Mynors would just reply: "Why not?" It was a free-for-all.' So at the beginning of the second week Maxwell could expect no help from the City Establishment, but on the Monday that was not of such paramount importance. More fateful was the secret arrival of a man whom Maxwell had recently met for the first time in Australia.