Maxwell, The Outsider

by Tom Bower

  Rupert Murdoch had landed at Heathrow the previous day for the first round of what has since become a regular if unequal bout between two ambitious individuals. Murdoch, then thirty-seven years old, started the competition with advantages which were denied to the forty-eight-year-old Maxwell. The Oxford-educated Australian had inherited from his father money, privileged social status and a small newspaper which he had successfully used to build a sizeable business in Australia. Murdoch was ready to expand into Britain. When he heard that Maxwell's bid was opposed by the Carrs, he dashed to London to propose a deal to Sporborg. In return for Murdoch's purchasing sufficient shares to tip the balance in Carr's favour, Sporborg should convince his client to merge his interests with Murdoch who, as a reliable and junior partner, would sympathise with his interests. The two would be joint managing directors while Carr would remain chairman. Since the investment was well protected and the possible rewards were enormous, Murdoch had everything to gain.

  Knowing that after ten-thirty in the morning Carr would be incapable of taking any decision, Sporborg and Murdoch drove on 22 October to Cliveden Place for breakfast in Carr's apartment. Winning his approval was unproblematical. The young Australian and Carr shared friends and acquaintances and both were committed newspapermen. Indeed, with the exception of his new Australian, all of Murdoch's own newspapers survived on a diet similar to the News of the World's - sex and scandal. By the following day, Murdoch owned 3Vi per cent of the shares. The news that Murdoch was a redeemer leaked quickly, provoking more banner headlines and placing Maxwell back in the centre of the news. Following new complaints from Maxwell to the Panel, dealings in the shares were suspended, but Carr, with Murdoch's help, had already won majority control.

  The Cliveden agreement stipulated that Murdoch would obtain a 40 per cent interest in the News of the World by purchasing a new issue of shares. In exchange for owning the biggest stake in the newspaper, Murdoch would invest into it 'certain' of his own News Limited interests. Since Murdoch had no intention of investing anywhere near the same amount as the £34 million which Maxwell had bid, Carr was selling his newspaper for considerably less merely to satisfy his prejudice. But as a consequence the other shareholders were being denied the chance of receiving the 50s per share that Maxwell was now offering. Sporborg had masterminded another breach of the code, although in his combined defence with Murdoch's bankers, Morgan Grenfell, he justifiably insisted that Mynors had initially approved his tactics. The spirit, he conceded, might have been broken, but not the letter. Both bankers had just 'popped in' to Mynors and won his agreement, but once the furore broke, Mynors quickly retreated. By then, of course, it was too late for Maxwell, who commented, 'This is a disgraceful affair and it is up to the Takeover Panel to do its proper job.' As a pointed supplementary, Maxwell wondered aloud how embracing an Australian protected the paper's uniquely 'British' ownership. Others waited to see whether Anthony Crosland, the Labour Minister at the Board of Trade, would intervene to help his parliamentary comrade.

  At the end of October, the final resolution of the battle depended on the extraordinary shareholders' meeting which was to be called to approve the issue of extra shares to complete the Cliveden agreement. The public outcry was too fierce for the City to allow events to take their course unimpeded. While Carr's advisers pleaded for time to negotiate their deal with Murdoch, Clark, after persuading Maxwell to fulminate in uncharacteristic silence on the sidelines, negotiated a major concession. Mynors, following a meeting summoned by Crosland, secured an agreement from the three merchant banks that they would not use at the decisive shareholders' meeting the 15 per cent of the shares which they had bought after Maxwell's bid. It was a belated attempt to save the Panel's reputation which presented Maxwell with new hope. Of the outstanding 85 per cent of shares, approximately 20 per cent were nominally uncommitted. Maxwell needed the bulk to win control. Overnight, the contest slumped to a new level.

  Murdoch had suddenly seen the prize slip just beyond his immediate grasp. A series of stories began appearing in his own Sydney Daily Mirror about the tactics of ILSC's encyclopaedia salesmen. Wounded, Maxwell issued the first of scores of writs which, over the next twenty years, he would hurl at newspapers to protect his reputation. In London, Sporborg read Murdoch's files about his rival but was advised that they were too defamatory for publication. That hardly satisfied Carr, who, when approached during the day drinking dry Martinis at the Savoy, only asked his banker, 'What are you doing to keep the foreigner out?' According to one of those present, 'It was an appalling time. Carr insisted on personalising the battle and our lawyers constantly crossed out paragraphs of our publicity as scurrilous.' For Carr, defeating Maxwell was all that counted and even Murdoch's unilateral decision, conveyed in a letter, that Carr could not after ail be joint managing director was quietly conceded to secure the Australian's continued support.

  Maxwell fought with the same passion but not the same methods. With superhuman energy, his personal publicity machine ceaselessly pushed the advantages of his own bid while he sought from the courts injunctions and damages against every banker, adviser and director connected to the Carr family under every conceivable heading ranging from breach of fiduciary duty to conspiracy. He also sought the support of the trade unions and travelled to Southsea to discuss his plans with Bill Keyes and other SOGAT leaders. His scenario did not appeal to them. 'He didn't understand deadlines,' recalls Keyes, 'he thought it was like a scientific magazine. He wanted to walk in and take over and just cut manning levels among the printers and the journalists. It was a naive bid for power. We told him that he didn't understand newspapers. He packed up his papers and walked out.'

  Maxwell felt the pressure tightening. The forecast of ILSC's profits was critical to the price of Pergamon shares, and keeping the price of those shares high was in turn crucial to his bid for the News of the World. Between 4 June and 1 November 1968, Pergamon's shares had risen from 34s 6d to 46s 10d, having peaked at 48s. As the take-over battle approached its climax, scattered and unsubstantiated rumours began circulating in the City that ILSC's profits would not be as high as Maxwell had suggested in his circular sent to shareholders on 15 May. In a meeting with Maxwell on 18 September (which was confirmed in writing), Cooper Brothers, ILSC's consultants, who knew the rumours to be true, warned the chairman that ILSC's accounts were 'unreliable'.

  That warning was discussed at an ILSC board meeting held on 15 October, the day before the News of the World bid was announced. Maxwell and all his fellow directors acknowledged that their company's accounts were in such chaos that they would be unable to comply with their original objective of presenting the normal annual accounts for the year ending 30 June 1968 and would instead organise accounts for the eighteen months ending 31 December 1968. As the weeks passed and the take-over battle progressed, even that target seemed increasingly impossible to meet, fuelling rumours about Pergamon's profits which were naturally encouraged by those acting for Carr.

  Since maintaining the price of Pergamon's shares was vital, during the three weeks following Maxwell's bid announcement, one of his private companies, Maxwell Scientific International (Distribution Services) Ltd (MSI(DS)), bought 245,500 Pergamon shares in three transactions through Michael Richardson, who worked at Pergamon's stockbrokers, Panmure Gordon. The purchases, which cost £1,100,000, were properly announced by Panmure and complied with the take-over code. Those purchases clearly had an effect on keeping the share prices at their very high level although Maxwell later explained that it was done as a 'longterm investment' on the advice of his bankers and brokers because 'I was convinced that the bid would go through and that the price would rise very substantially.'

  As the battle dragged on, Maxwell was told by his bankers, Hill Samuel and Robert Fleming, that Pergamon's price was weakening. With his agreement and again with proper notifications, the two banks purchased a further 215,500 Pergamon shares in November and December. Maxwell gave undertakings to both banks that he would repurcha
se the shares at any time up to 31 January 1969.

  Even as his chances were waning, Maxwell, unwilling to accept defeat, launched a frantic counter-attack. Michael Richardson was sent to Australia with the brief to launch a bid for Murdoch's own group. The half-hearted attempt, which was dubiously reported as having the support of Roy Thomson, quickly collapsed. Meanwhile in England, Maxwell personally telephoned dozens of shareholders to win their support. His calls revealed that most were antagonistic towards him, despite the press comment running in his favour. In desperation, he sent two thousand telegrams and even personally promised to pay for taxis to bring pensioners to the meeting. Yet on the eve of the final showdown, Maxwell's bid was certainly doomed. To the very last, Sporborg pulled the strings to engineer Maxwell's defeat.

  The public venue for the decisive vote was the Connaught Rooms near Covent Garden. On Thursday 2 January 1969, dressed as always in a bright blue suit, Maxwell arrived just before ten-thirty to discover that the hall was packed with hundreds of Carr employees who had arrived in a fleet of company buses. In the front row sat the Carr family dressed in black, but united. Depressingly for Maxwell, that day's newspapers had led with Sporborg's late-night claim that he had collected sufficient proxies to guarantee victory. Visibly nervous in the hostile atmosphere, the outsider watched as Murdoch, smiling and confident, entered the room accompanied by his attractive wife. At a long table in the front sat Carr who, from his right side, would be supplied by Sporborg with an endless stream of prompt cards to answer the prearranged questions from the shareholders. 'Unfortunately, he could not even read what was written,' recalls one banker. Maxwell, by contrast, knew exactly what he wanted to say - that his bid promised shareholders unquestionably a lot more money. Unfortunately for him, the cold logic of the market place was not in issue. The vote was about Maxwell himself.

  Others in that predicament, where the glare of television spotlights was certain to seize upon and record every glance of personal antagonism, might at that moment have chosen gracefully to accept the inevitable verdict and treat those who had denigrated him with dignified contempt. Yet it was the very nature of Maxwell to ignore defeat until every possible avenue has been exhausted and then, if possible, to start the fight again. Like a tireless salesman, he would never take no for an answer.

  Cheers greeted Carr as he rose to open the meeting, the loudest from his own specially selected employees. Scathingly, he condemned Pergamon's lack of experience in newspapers and was sceptical about Pergamon itself, whose shares had been falling in value despite huge purchases by Maxwell and his friends to support the price. No one mentioned that the price of News of the World shares was also tumbling as Carr spoke. Murdoch followed with a succinct statement and was followed in turn by Maxwell. Amid jeers and catcalls, Maxwell launched an unrestrained but fumbling attack on Carr which was punctuated by shouts of 'Go home' and 'Rubbish' before finally ending in uproar. Many of those heckling were identified as 'small men in mackintoshes', the traditional and loyal News of the World readers who were delighted to have an opportunity to vent their personal dislike of the publicity-seeking, foreign, socialist millionaire. Sitting just feet away, Murdoch ill-concealed his smile. The outburst of emotion only delayed the inevitable. Once the vote was taken, the hall emptied and only a few waited for the counting to be completed. Untrusting to the end, Maxwell strode into the scrutineers' room, only to be forcefully ejected by Carr. The result was a massive victory for Murdoch.

  The final scene as the curtain fell was poignant. The victor embraced his wife. Carr looked on smiling, enjoying his moment, albeit briefly, because shortly afterwards he would be unceremoniously ousted from power by his chosen redeemer. On the side, alone, stood Maxwell, a wet sheen glistening over his eyes, fixedly staring into the distance - an expression which always indicated that Maxwell either felt wounded or understood he had suffered public humiliation. Sportingly, he shook Murdoch's hand and congratulated him on catching 'a big fish with a very small hook'. To a journalist, inquiring about reaction to the City's conduct, he quipped, 'I'm on the side of the angels; it's amazing.' It was the first but also the last time over the next decade.

  7

  Days after the defeat, still suffering from the vilification and the abuse, Maxwell flew to New York. 'I felt that the British would never let me succeed,' he told a friend shortly afterwards in a rare display of despair. The events in the Connaught Rooms had been the climax of a disastrous year. His new operation depended upon a constant stream of acquisitions, especially of companies like the News of the World whose valuable assets could be exploited more profitably, and throughout 1968 all his major bids had failed. Maintaining the high value of Pergamon's shares depended upon repeatedly improving his profits. In Oxford, his staff were compiling the 1968 accounts but he already knew that it would be impossible to beat the previous year's record. That presented a serious predicament. During the News of the World take-over battle, he had issued a forecast that Pergamon would earn around £2 million profit in 1968. If that forecast did not materialise, his future credibility would be harmed.

  Whether by the time his plane landed in New York he had actually planned a detailed personal survival plan has always been unclear. But he had already anticipated that there was a fortune to be earned from developing a scientific information retrieval system based on computers and that, because of his poor reputation in Britain, he needed an American partner.

  Three years earlier, in Pergamon's annual report, Maxwell had written about the 'decisive importance' of a computer-based retrieval system. Although nowadays that statement seems unexceptional, it was in 1966 a percipient prediction because computer technology was still crude and very few people had even imagined the possibility of personal, desk-top computers. Maxwell had tried to obtain government funding for his ideas and approached Sir Frank Kearton, the chairman of the Labour government's new investment bank, the Industrial Reorganisation Corporation. Kearton says that he had been 'very impressed' by Maxwell's 'vision and energy' but had rejected his application because 'the technology was simply not yet sufficiently developed'. Nevertheless, Pergamon's 1966 report stated, 'Pergamon is the only company in Europe in information retrieval.'

  In January 1969, Maxwell hoped that he would find a partner in America. He had approached several people before telephoning Saul Steinberg, a twenty-nine-year-old American multi-millionaire whose record was by any standards quite phenomenal.

  Steinberg was a Jew from Brooklyn, New York who had graduated at the University of Pennsylvania. In the course of writing a precocious thesis entitled 'The Decline and Fall of IBM', he had recognised that IBM was losing potential customers for its computers either because they could not afford the price or because they were reluctant to invest in technology which would soon be redundant. Steinberg's coup was to create an arrangement whereby his company, Leasco, bought IBM computers with finance provided by banks and leased time on the computers to customers.

  At the end of 1967, Leasco was worth about $75 million and was earning $1.4 million in profits, which gave it a rating, according to Fortune magazine, as one of the fastest-growing companies in the west. In 1968, Leasco's profits rocketed to $27 million and its assets soared to $1,000 million. Steinberg had orchestrated a dazzling display of perpetual corporate restructures amid a blitz of take-overs and mergers. Within one year Leasco had expanded into management consultancy, shipping containers, and engineering and computer service groups in North America and western Europe. His biggest coup was a successful bid for the respectable Reliance Insurance Group worth a massive $740 million. For most of the year, Steinberg's star shone brightly and Leasco's share price trebled but in late summer his ambitions were crushingly halted. He had let slip that he was planning a bid for the prestigious Chemical Bank. Wall Street was aghast and turned with a vengeance to punish the arrogance of a Brooklyn youngster. Leasco's shares plummeted and many of Steinberg's sponsors cringed. Wounded, Steinberg retreated to ponder the predicament of the outsid
er. ‘I always knew there was an Establishment,' he subsequently mused, 'I just used to think I was part of it.'

  When destiny brought Maxwell and Steinberg together, the pride of both had therefore recently been shaken by public ostracism. Both were irreverent but wanted to be revered. Inured to criticism, their fantasies continued to flourish inside the bubbles of their own self-promotion. Both were enigmas since they shared an ambition for power but gave no intelligible explanation about how they would exercise it. Both shared another ambition, to become richer and yet more richer. As footballers are rated by the number of goals they have scored and pilots by the number of hours they have flown, businessmen are evaluated by the number of millions and billions at their disposal. In 1969, as today, Steinberg was much wealthier and therefore in their own terms a more successful man than Maxwell, which must have affected the forty-five-year-old's perception of the American Wunderkind.

  There are three versions of how Robert Maxwell first met Steinberg. Two are aprocryphal (but they are naturally the most attractive despite their lack of authenticity). Maxwell, it is said, was so keen to meet the man who was even more successful than himself that, from New York, he telephoned his personal secretary Jean Baddeley and asked her to find out which hotel the chubby-faced tycoon would next be breakfasting in. Reliable as always, Baddeley delivered the correct location and reserved the neighbouring table for her boss. In the midst of his meal, Maxwell rose and addressed his neighbour: 'Oi vey, have I got a deal for you,' whereupon, it is said, Maxwell presented Pergamon's latest annual report to the surprised American and suggested that they discuss their joint future.