by Tom Bower
Maxwell's immediate reaction to the allegation of foul play made by Steinberg is not easy to discern. With the exception of the accusation made subsequently to newspapers and television interviewers that 'I was foolish to trust Mr Steinberg and check that he had enough money to complete the deal,' he has been resolutely unwilling to explain his behaviour between 17 June and 16 August. It is possible that he was agreeable to Steinberg's suggestion on the fateful day that they manoeuvre a quiet separation. Steinberg explained that it was in both their interests - 'no noise, no loss of face, just let's slide out'. There were no secrets about Steinberg's motives. Once Wall Street realised that he had spent $18 million on a possible hype, his rating would nosedive and the price of Leasco shares would tumble. Steinberg was well acquainted with the financial world's caste system and feared ostracism if the highly publicised deal collapsed, revealing that he had made a mistake and perhaps provoking a public brawl. Even worse, he would be liable to a stockholders' suit for failing to exercise due diligence and causing the corporation financial losses. He wanted a cover-up and he had every reason to believe that Maxwell had agreed. But by the time Steinberg landed in London on Sunday morning, Maxwell's attitude had again changed. 'Under British rules,' he told the American, 'once a bid has been announced, it must be carried through.' Technically, he was correct, but Rothschilds had already embarked on an operation to unravel the deal.
Leasco's bid was subject to scrutiny by the Take-over Panel which, in the wake of the News of the World debacle, had again been radically changed. Not only were some of the more glaring loopholes sealed, but three months earlier Sir Humphrey Mynors had been demoted and replaced by men whose credentials, the Bank of England believed, would guarantee that the Panel was authoritative, impartial and respected. Its new director was Ian Fraser, who had been recruited from the merchant bank Warburgs. During the previous week, Fraser had heard that the proposed bid was in trouble but he was unaware of the details. He was therefore not completely surprised when Jacob Rothschild telephoned on Sunday morning, soon after Steinberg had landed, and asked for an urgent meeting. The venue that afternoon was Fraser's house in Putney. Present were the banker, Steinberg and Thibodeaux.
Fraser's task was to judge whether or not Leasco had good grounds for withdrawing its bid and how, in either case, the ordinary shareholders' interests could be protected. Fraser had long been acquainted with Maxwell. In 1947, he had been a Reuters correspondent in Berlin and had hazy memories of the boisterous Maxwell enjoying his rank in the officers' bar, surrounded by bizarre rumours about a deal concerning a German scientific publisher. Fraser also knew that Warburgs had declined an approach to act as Maxwell's banker. But his attitude was nearly balanced by an equal lack of sympathy towards Steinberg who, most City gentlemen agreed, was a brash young man in far too much of a hurry. So with fair distaste for both sides, Fraser could judge the case on its merits. On that Sunday, Rothschilds' case - that Pergamon had announced inflated profits for the past three years - seemed irrefutable. When Steinberg reached his hotel that night he called Fleming.
'We've discovered that Pergamon isn't worth what "you told us,' said the American.
'How terrible,' replied the banker in a monotone voice.
'We think you owe it to us to buy back all the stock you sold us.'
'That's not possible,' said the banker, replacing the receiver.
Flemings' clients' funds had received £3.8 million for their Pergamon shares, which five days later would become unsaleable and effectively worthless.
Maxwell's predicament was no less awkward when he met Fraser the following day.
'You are accused', said Fraser, 'of inflating the profits.'
'It's outrageous that you accuse me of lying,' retorted Maxwell calmly, and he insisted that the deal should go through. That, of course, was just what Steinberg did not want, but having bought 38 per cent of Pergamon shares, insufficient for total control, he had become more anxious than ever to convince Maxwell that they should seek a private settlement.
The events and chronology of Monday 18 August are too blurred and contentious to permit accurate reconstruction. Leasco was certainly hoping to persuade the Panel to allow the bid to be withdrawn and there is evidence that Maxwell at one stage was also in favour, because late on the Monday afternoon Fleming drafted a press statement announcing the end of the bid. The draft was withdrawn when Maxwell suggested that they seek the help of someone in London who could be relied upon to act as a mutually trustworthy arbitrator - the solicitor Lord Goodman.
Harold Wilson introduced many unusual personalities into the mainstream of British political life during his terms of office and few of them seemed to wield as much influence as his personal lawyer Arnold Goodman. Not many observers outside or even inside Whitehall could understand why the Prime Minister should delegate negotiations with the white rebel regime in Rhodesia to the solicitor. The Leasco team would be similarly bemused when their request for his immediate mediation was rebuffed with the excuse, ‘I’m just trying to settle the Ulster problem at the moment. Could we meet later tonight?'
So, just after midnight on 19 August, the two millionaires gathered at Lord Goodman's flat in Portland Place in central London. Poignantly, while Steinberg arrived with Leach and other Leasco executives, Maxwell was alone.
The Leasco team wanted to negotiate a price for Maxwell's shareholding which was dependent upon Pergamon's proven profits. If Maxwell agreed, then the trustees for the family trusts, who owned more than two million shares, would have to sign the agreement. But identifying who actually controlled the trusts was proving frustratingly difficult. When Ian Fraser had asked Maxwell about the sale of the 197,000 Pergamon shares sold by Bahamas Trustee & Executor, one of the family trusts, the businessman had pleaded that he had absolutely no control over the trusts. When a second tranche of 400,000 was sold by another family trust to the unsuspecting Rothschilds, Maxwell again insisted that he was powerless. But ten weeks earlier, on 30 May, when Schwartz had asked about the trusts, Maxwell had said, according to Schwartz, that he could negotiate on their behalf. Yet when the two sides gathered that night at Goodman's flat, Maxwell flatly insisted, ‘I cannot speak on behalf of the trustees.' When asked whether they could not be brought to London, Maxwell replied that one was in the Middle East while another was in Majorca and did not have a telephone.
As dawn broke over the London skyline, Steinberg made a final offer and Maxwell suddenly accepted. Steinberg announced that he would hire a private plane to bring the trustees to London to consider the same offer. 'Oh that won't be necessary,' said Maxwell, pulling out some papers from his jacket pocket, 'they gave me signed proxies to negotiate on their behalf.' Everyone was silent until Goodman said, 'There you are. He's quite incorrigible.' Maxwell's last words to the Leasco team as he left would for long ring in their ears: 'I've done nothing wrong. We're all over twenty-one now.'
Throughout Tuesday and again on Wednesday morning, Jacob Rothschild and Richard Fleming continued to negotiate the sale of Maxwell's shares on the basis that the Pergamon accounts were grossly inaccurate. Rothschild was offering 18s 6d per share instead of 37s unless Pergamon's profits exceeded £2.27 million. Relations remained brittle until Wednesday midday, at which point they broke.
The rupture was caused by a draft letter which Maxwell had just sent to Rothschild for inclusion in the formal offer document. It stated that 'The internal management accounts show that ILSC is now trading profitably.' Ostensibly it was an important verification of Pergamon's profits. Rothschild decided to investigate the letter's provenance and discovered that Maxwell was basing it on a statement signed on 13 August by Chalmers Impey and Cooper Brothers which affirmed that ILSC would make a trading profit of just £40,000 at the end of the first eighteen months. But Maxwell had not revealed that, as Pergamon's chairman, he had signed three agreements the day before with ILSC, of which he was also chairman. The first was to buy some of ILSC's stock of outdated encyclopaedias for £200,000,
the second was to buy some of ILSC's old debts for £114,895, and the third was to give ILSC £42,000 credit for services it had been charged for the use of the offices at Fitzroy Square. (The transactions only came to light some months later.) Certainly it was not illegal to move £356,895 from one company to another, but it was not what was usually understood by the phrase 'trading profitably'. This was the last straw for Steinberg.
On late Thursday afternoon, Jacob Rothschild issued a terse announcement that the Leasco bid was withdrawn, giving as the reason just the briefest reference to Pergamon's forecast earnings. It was an unprecedented situation involving such a public figure. Since it was August - the 'silly season', when there is normally a dearth of news - and the Labour government's status had fallen to a new low in unpopularity, the politician's crisis was sensational news.
The public's sympathy at first leaned towards Maxwell. While Steinberg, acting under strict orders, was unable even to explain that it was not a sudden decision, Maxwell and Richard Fleming issued a statement expressing 'regret' about the collapse, especially since only the previous Tuesday the two sides had met and had 'reached full agreement on all outstanding points'. The statement continued that Leasco's reasons for withdrawal 'had previously been discussed with full information available and the points were not at issue'. As he stepped out of his maroon Rolls-Royce in Fitzroy Square later that evening, Maxwell beamed at the television cameras. For the ordinary viewer, Maxwell was clearly the innocent victim of an unwelcome American predator. It was an untainted image, which Maxwell felt he deserved.
Among Maxwell's key defences during the ensuing probes into his business activities has been his insistence that he had always relied upon his professional advisers and that they had always endorsed his conduct. A meeting held at Flemings on Friday 22 August, the day after Leasco's public withdrawal, exemplified his justification. Among those gathered to discuss the state of ILSC were representatives of BPC, Hill Samuel, Chalmers Impey, Cooper Brothers and Whinney Murray and Maxwell's solicitor, Isidore Kerman. All of those in Flemings' conference room would have wished to be acknowledged as reputable and skilled professionals. At the end of the meeting, they unanimously agreed to a statement, to be circulated to all Pergamon shareholders the following day, which declared that 'The management accounts of ILSC show that it is now trading profitably.' The amount specified was just £40,000. There was no mention of their previous forecasts (the most recent had been four weeks earlier) that ILSC would earn 'pre-tax profits of £500,000 per annum' or of Pergamon's recent purchases from ILSC worth £356,895. Many of those present would later claim that they left that meeting with qualms; but that was only in retrospect, once the accounts were proven to be in shambles.
On Friday morning, in the wake of Rothschild's announcement, dealings in Pergamon shares were suspended. Maxwell, Briggs and David Pearson of Flemings were interviewed on the same day by Ian Fraser. The Panel's director left his audience in no doubt where his sympathies lay. In his view, the 1968 accounts were inaccurate. Maxwell was outraged and excited, claiming that Fraser was raising 'unjust and unfair allegations'. As Pearson attempted to soothe his client, Fraser went through Leasco's allegations until he reached Pergamon's sales to MSI Inc. 'That's a reputable company,' said Maxwell. 'Who is the owner?' asked Fraser. 'A trust,' replied Maxwell. 'Who is the beneficiary of the trust?' ‘I don't know.' 'I can tell you,' interjected Fraser, 'your sister.' Both Briggs and Pearson claimed to have been surprised by the revelation. What probably shocked them more was the realisation that their conduct was being questioned by their peers. The following day, Fraser announced that he was prepared to allow Leasco to withdraw its bid; Maxwell immediately appealed.
During that Saturday, Maxwell gave several interviews. There was nothing wrong with Pergamon, he insisted. The bid had collapsed, he said, 'because Leasco did not have the cash to complete the deal'. Both the Sunday Times and the Sunday Telegraph were assured by Maxwell personally that 'I and my financial advisers are completely at a loss to understand why Leasco acted the way it did.' When Richard Fleming read the newspapers on Sunday morning he instantly resigned as Maxwell's adviser, claiming that the statement had been made 'without [my] knowledge or consent'. Both Fleming and Rothschild disputed Maxwell's claim that Leasco lacked the funds. Nevertheless, Maxwell perpetuated that claim relentlessly. For it would be his style in the months ahead solemnly to issue statements which he no doubt believed to be true but which the others involved condemned as wholly incorrect. Such a statement was Maxwell's explanation that Richard Fleming had resigned to avoid involvement in the legal proceedings which he, Maxwell, was threatening to launch against Leasco. Maxwell's bravado was impressive. 'I shall ask the Panel,' he told BBC radio news at Sunday lunchtime, 'to investigate the real reasons as to why Leasco was unable go to through with the offer.'
But even if the press that day reported Maxwell's comments in full, there was unanimity that his commercial fortunes were waning by the hour, possibly beyond the point of recovery. In fact, quoting his comments verbatim confirmed the gravity of his plight. He had been too arrogant in the past for most commentators not to reflect the prevailing sentiment in both the City and Parliament that Britain was witnessing his approach to the first station on the Via Dolorosa. Naturally, drawing on the information collected over the previous two months, the Sunday Times published the best analysis about the real cause of the collapse - ILSC and MSI Inc.
Maxwell was convinced that the newspaper and Rothschilds were conspiring to hasten his crucifixion. In a public statement, he attacked the 'highly inaccurate and grossly defamatory article' which among many mistakes wrongly suggested that 'Leasco and its advisers were [not] freely given all information required on ILSC, MSI Inc. and Robert Maxwell & Co.' His comments were sufficient for his brokers Panmure Gordon also to resign and even Chalmers Impey sent a long letter containing twenty-five questions and qualifications to their previous statement on Pergamon's accounts. Within two days, Maxwell found himself practically alone, firmly on the outside as he faced the first of the series of bruising investigations into his business conduct.
At 11 a.m. on Monday morning he arrived at the Bank of England's office in New Change, near St Paul's Cathedral, to attend a meeting of the full Take-over Panel, which had to adjudicate on whether Leasco was entitled to withdraw the bid. Presiding over the ten panelists (all of them heads of City institutions) was Lord Shawcross, who had hurriedly returned during the weekend from his summer holiday in Yugoslavia. The former Labour Attorney-General enjoyed a reputation as one of Britain's most skilled courtroom interrogators who, with a minimum of words, could demolish the most reluctant witnesses. His appointment as chairman of the Panel in the wake of the News of the World bid was interpreted as the City's last chance to prove that it was able to regulate itself. The Pergamon bid was the new Panel's first major opportunity to prove its mettle - 'to show we weren't going to pull our punches' - and it would not be an exaggeration to suggest that the City especially relished the prospect because of the subject himself.
Shawcross's ostensible style was to introduce a measure of informality into the proceedings. When Maxwell suggested that he wanted to be represented by John Silkin, his fellow Labour MP and friend, Shawcross looked through his half-moon glasses and said gently, 'Come, Mr Maxwell, you are perfectly eloquent to argue your own case.' The first day was to be gentle. While the Leasco team waited in an adjoining room, Fraser put the case for the prosecution, displaying, it was noted by some, great confidence. Maxwell followed, speaking without notes and at great length. 'I know nothing about accountancy and relied entirely upon Chalmers Impey,' he pleaded, and everyone noticed that Briggs was absent, uncontactable on a fishing holiday in Scotland. Then, while Maxwell waited, Shawcross heard the Leasco case. 'At that stage it was felt that the Americans had gone into it with their eyes wide open,' recalls a panelist. 'As far as we were concerned, both sides were mavericks who deserved each other. Later it became a joke that, for the first time i
n his life, Steinberg was the "good guy".'
It was on the second day that Shawcross applied the pressure. Probing and reasonable, but never aggressive, the lawyer cut through Maxwell's defence, forcing him first to admit that Leasco was not short of funds and then to concede that Leasco had not intended to depress the price of Pergamon shares to buy the company at a discount. 'Everyone was impressed how Shawcross just pulled Maxwell's contradictions apart,' remarked Ian Eraser at the time. Others were critical. 'He was too aloof. You don't get the best out of professionals by treating them like Hermann Goering at Nuremberg.' Nevertheless, by the end of the second day Shawcross's rapier questioning had exposed the questionable profits of the Spanish translation rights, the MSI sales and the ILSC profit forecasts. The ground was cleared, while the Panel adjourned, for some hard negotiations between Maxwell and Leasco.
Jacob Rothschild had been severely mauled by Shawcross and, although some believed that it was just for 'form', Rothschild himself realised that the affair had not embellished his bank's reputation despite his initial cautionary advice to Steinberg. Whatever the Panel's decision, it was in the interests of Pergamon, in which Steinberg had invested £9 million, that a settlement should be reached. Late on Tuesday night, Leach had secretly asked Michael Richardson, Maxwell's friend and broker at Panmure Gordon, to act as an intermediary and persuade Maxwell of the advantages of urgent talks about a settlement. Richardson, who has always been faithful to Maxwell's interests, succeeded.
