Maxwell, The Outsider

by Tom Bower

  At Wednesday lunchtime, Maxwell, Kerman, Leach, Hodes and Fraser sat down for lunch at Rothschilds' headquarters to hammer out an agreement. By the end, Hodes believed that he had successfully extracted from Maxwell his near-complete surrender in a seven-point plan. Maxwell agreed that five Leasco nominees and two directors nominated by Rothschild would sit on Pergamon's board; that he would relinquish his own proposed position in Leasco and, while remaining chairman, would cease to be the managing director of Pergamon; and that, when Leasco's bid was relaunched, the amount paid for the outstanding shares would be proportional to the true profits, which would be determined by independent accountants. Maxwell's only victory was that his family trusts would keep the proceeds of the sale of their shares - effectively over £1 million. Those funds would be a vital ingredient in his eventual recovery.

  On Thursday, the Panel reconvened. The first business was the previous day's agreement, which deprived Maxwell of any control over Pergamon. Shawcross approved the deal. Hodes asked that the agreement be properly signed and witnessed. Shawcross gave him an icy stare and in a most judicial voice replied, 'The City, Mr Hodes, operates on trust.' Hodes had no chance to protest that it was precisely the collapse of that trust which had brought them all together. Shawcross had started to deliver the Panel's verdict, which according to Fraser was 'expressed in the most memorable, beautiful English': 'The Panel is satisfied that Leasco's decision to withdraw from the proposed offer was the result... of a series of difficulties and doubts which eventually destroyed their confidence. ... In all the circumstances, the Panel accepts Leasco's explanation for its withdrawal from the proposed offer.' Couched in the most prudent form, Shawcross then listed the Panel's concern about ILSC and Pergamon's failure to disclose the trading links with the family companies.

  When Maxwell and Silkin read the proposed statement, they became alarmed and urged its modification. Officially and unofficially, the Panel was concerned only with the take-over and it had never been suggested that there would be any mention about the internal affairs of Pergamon. Maxwell felt that he had not been given a proper opportunity to defend himself. The Panel's bias, he argued, was plain. Their statement was exclusively about Maxwell. There was no mention of Flemings, Chalmers Impey, Whinney Murray or Cooper Brothers, upon whom he had expressly relied. Even Flemings' hugely profitable sale of Pergamon shares was only referred to as requiring the Panel 'to contemplate studying the general principles which should apply in circumstances where possible conflicts of interest may be. . .’ But, worst of all, the Panel called for a full Board of Trade inquiry. This was totally unprecedented as regards a profitable company. Maxwell demanded that Shawcross modify his statement.

  Once again, Maxwell saw that the City would protect its own kind and damn the foreigner. It was the second station on the Via Dolorosa. But he had no intention of either playing the game or keeping a stiff upper lip. He demanded changes and then additions. As the night developed, everyone became hungry and thirsty. The only source of drinks was a vending machine and, appropriately, only the Rothschilds had the correct coins. Just three packets of biscuits were divided between twenty-nine men. By 2 a.m. Maxwell had secured the inclusion of an important caveat which would both precede and follow the criticism: 'Nothing in the information before it casts doubt on the standing or future prospects of Pergamon, a company which under the energetic leadership of Mr Maxwell has made notable progress. Nor is there any suggestion at all of personal misconduct on Mr Maxwell's part.' But Maxwell could not prevent the Panel recommending a full Board of Trade inquiry. His only course was for an appeal on the grounds that the Panel had gone beyond its terms of reference.

  The public reaction to the report satisfied the Panel. 'There can be no possible doubt that we now have a watchdog with teeth,' commented The Times under the headline 'Discipline Arrives in the Take-over World'. Publicly, Maxwell did not dissent from the overwhelming praise. 'A much better Panel than before,' he declared on BBC television that night and pledged full co-operation with the Board of Trade inquiry. There was no suggestion from his side that he had been censured after four days inside a Star Chamber, that he had been abandoned by his advisers or that he would lose control of Pergamon. Instead, he acted as the champion. He naturally endorsed The Times editorial: 'It has to be said that Mr Maxwell has shown himself to be a man of quite remarkable energy and initiative and has conducted himself with courage throughout the proceedings.'

  The following day Maxwell posed, smiling, outside Rothschilds bank, shaking Steinberg's hand. The American had flown overnight from New York to approve the details which would incorporate Pergamon within Leasco, without Maxwell.

  9

  Steinberg's takeover of Pergamon was timed for Tuesday 2 September. At 9.35 a.m., two Leasco executives arrived at Fitzroy Square. Peter Stevens had been designated managing director and George Bello finance director. Neither was enthusiastic about his task. Stevens had always been critical of the venture and had since become depressed by the particularly widespread Schadenfreude which the row had sparked in London. Too many had sniggered, 'Let the two Jews fight it out.' The Czech-born American had no illusions that managing Pergamon with Maxwell as chairman would be easy, but the heads of agreement as approved by Shawcross and the Panel seemed cast-iron.

  As the Americans walked into the building, they were told that the Pergamon directors were meeting in the board room. Stevens asked for an office to make a brief telephone call. While he was speaking, Jean Baddeley told him that Maxwell was waiting. Stevens intimated that he would just finish his call. Two minutes later another telephone on the desk rang. 'If you don't come immediately,' snapped an unmistakable voice, 'you can pack up and go home.'

  Stevens and Bello rushed into the board room. 'He was furious,' recalls Stevens, 'almost incoherent, stabbing at that day's copy of The Times, which had my photograph and a caption describing me as the new managing director. He said that there was too much publicity, too many new directors and too many leaks to the press. It took me some time to calm him down.'

  Stevens suggested that Maxwell might introduce him to the directors. When this had been done, Stevens asked everyone to submit by the end of the morning a description 'on one side of paper' of their duties and the relevant financial data in the individual departments. As he spoke, Maxwell became noticeably agitated: 'We're not having all this stuff. It's too early. Your appointment hasn't been made official yet.' Stevens had expected some tension and possibly some aggravation, but no one had anticipated what Maxwell said next: 'You know, Peter, there's no agreement in writing about your appointment and no special board meeting is planned, so I suggest that both you and George return on the next flight to New York.' After a brief pause, there was a roar: 'Get out!' Startled, George Bello looked at Stevens as, sweeping some papers into his briefcase, the former declared, 'I've got four kids and I'm leaving.'

  Just before noon, the Americans were back in Knightsbridge reporting the latest twist in the saga to bankers, lawyers and Leasco executives on both sides of the Atlantic. By mid-afternoon, many highly paid and supposedly shrewd professionals were exasperated. Once more, they had been smartly outwitted. The 'seven heads of agreement' which had been negotiated at Rothschilds six days earlier, and then approved by the Panel, had not, because of Shawcross's insistence that in the City it was customary to abide by oral undertakings, been formally recorded and signed.

  Everyone knew, of course, that the cliché 'My word is my bond' was a sanctimonious bromide contrived for public relations. The Panel's recent history was littered with examples of broken promises and avoidance of the rules which had passed unpunished, and none more so than during the battle for the News of the World. Twelve months earlier, the City herd had not been overly troubled by the anguish which the outsider had suffered yet they still expected him to obey their club rules. But since the children of peasants do not become multi-millionaires unless they challenge those rules, it was not surprising that Maxwell saw no advantage in meek
ly complying.

  In Maxwell's view, the City and Leasco were either intentionally or by default destroying his company. The so-called 'well-informed' stories over the weekend in the Sunday Times and The Times were undermining both his own and Pergamon's credibility. He blamed the Leasco side for inspiring speculation that Pergamon's bank overdraft had risen from £1.9 million to £4 million while he knew that it had actually been reduced. Pergamon was his business and only he understood scientific journals. Respectable City institutions had endorsed all his accounts but they, protected by their own kind, had seemingly escaped blame. Yet he was expected to lose everything without a murmur. For Maxwell that was unacceptable. He would not be taken to the next station on the Via Dolorosa without a fight. His counter-attack started with a detailed letter to The Times which ignored the Rothschild’s agreement and raised a raft of new and complicated demands. He had left the corner and was back in the centre of the ring.

  Subconsciously, Rodney Leach had anticipated that Maxwell would not go quietly. During the Panel's last, late-night session, he had thrust a letter of resignation drafted by a Rothschilds lawyer in front of Maxwell for signature, but it was deemed to be legally valueless. Soon after Stevens had telephoned him and reported his ejection from Fitzroy Square, Leach had appealed to Fraser, requesting that the 'unconditional' agreement should be implemented. Fraser was naturally sympathetic but urged patience while Shawcross was again recalled from his holiday. Fraser also telephoned Maxwell.

  Brazenly, Maxwell disputed Leach's and Fraser's interpretation of the agreement and insisted that Shawcross would support his version. The impasse was complete and he might have waited. Instead, a few days later, he issued a hazardous challenge. In a press release, he announced that because 'Leasco and Pergamon cannot work together', and because the Pergamon directors would not surrender the company's management until Leasco had secured a majority of the shares, he was calling an extraordinary general meeting (EGM) of all shareholders on 9 October to decide whether Leasco was entitled to sole management. Maxwell the gambler had pushed aside the businessman and bargain-hunter. The player had committed his future to be determined at a public meeting.

  After the sales by his family trusts, Maxwell controlled only 28 per cent of the shares against Steinberg's 38 per cent. His future depended upon the City institutions, who held 17 per cent of the stock. For Maxwell to have expected their support was to take an uneven risk. Regardless of the flattering newspaper comments in the previous week, the City was abuzz with rumours and defamatory allegations which made those circulating in the past seem tame by comparison. But Maxwell, who was always genuinely surprised that others did not share his high self-esteem, had spoken to the fund managers and calculated that he could count on their support because they agreed that, without him, Pergamon would collapse. There was also another motive. By then, one of the reasons for selling Pergamon had disappeared and his major ambition had again been thwarted.

  Soon after he had expelled the Americans from Fitzroy Square, SOGAT had announced its 'loss of confidence in Mr Maxwell' as a possible proprietor of the Sun. Preoccupied by the fight to save Pergamon and deprived of the anticipated finance from the sale of his shares, Maxwell unemotionally conceded victory to Rupert Murdoch for the second time within twelve months. Thrice he had played by the rules and had pledged to support a Labour newspaper and each time he had failed. Maxwell did not ponder for long about the paradox that Murdoch without any social status in Britain could succeed while he, a Member of Parliament with a fine wartime record, should constantly fall flat on his face. His explanation was simply that he was the victim of the Establishment's prejudice. His own style was not a factor worth contemplating. This time, Fleet Street wrote off his ambitions forever. 'This is obviously the end of Mr Maxwell's dream of being the proprietor of a national newspaper,' pronounced Hugh Cudlipp, the chairman of IPC, which owned the Sun. Many now predicted the same fate in the world of business.

  Leasco placed a great deal of faith in Shawcross and in the City's much vaunted self-regulation to enforce the agreement made on 28 August. Steinberg and Hodes flew from New York to be present when Shawcross returned from Yugoslavia. Maxwell had consented, in the event of any disagreements, to be bound by any new ruling which Shawcross might make. Maxwell was summoned to attend on 9 September at the Panel's office to explain why he had not relinquished management control.

  Accompanied by his new merchant bankers William Brandt, Maxwell told Shawcross that the lawyers' interpretation of the agreement was 'wrong' and later denied that he had ever agreed to abide by any further rulings. His icy, impenetrable sense of righteousness disconcerted Shawcross but endowed Maxwell with increased courage. The next to arrive in Shawcross's room was Hodes, who asked what decisive remedy the Panel now proposed. He was answered by a deafening silence. Maxwell had not obeyed the ritual and had paralysed his accusers. Despite his status, Shawcross was powerless and even humiliated.

  Outside in the City streets Hodes and Steinberg assessed Leasco's dilemma. In New York, the Securities and Exchange Commission would have wiped Maxwell off the floor. But in London, while the City-patricians smugly pretended that their behaviour was impeccable, they condoned any malpractice so long as it was invisible; and when it burst out, they ignored their impotence. They were standing in the middle of a market which was nourished on a cracked ethic and managed, in Leasco's view, by amateurs who were not equipped with the technical expertise to understand a balance sheet. They heaped the blame upon Maxwell to protect themselves. There was no alternative but to remain and fight to recover their $18 million. 'We shall gain control of Pergamon whatever happens,' said Steinberg before flying back to New York.

  Steinberg left a disaster and returned to an earthquake. Since the debacle, the price of Leasco shares had collapsed from $33 to $10 and there was serious unrest among his staff, who were uncertain about his company's very survival. His stake in Pergamon was also in doubt. If he completely eliminated any connection with Maxwell, the publisher might set up a competitive business or interfere with customers. He could cause unlimited damage especially if there were more unknown agreements with the family companies. Steinberg was frankly incredulous about the mistakes he had made. The only glimmer of hope was the announcement that Anthony Crosland had appointed a Board of Trade inquiry into Pergamon. The two inspectors, Owen Stable QC and Sir Ronald Leach, an accountant, were expected to deliver an interim report within three months. Their activities might persuade the City institutions to favour Leasco's bid.

  For Maxwell, Crosland's decision was calamitous. Despite welcoming the announcement in public, he had lobbied his fellow politicians intensively to support him against the appointment of an inquiry, pleading that he was the victim of a vendetta. But pressure from the City, especially from Shawcross, and the oblique references to Simpkin Marshall, compelled Crosland to approve the investigation. When Maxwell heard that he had lost, he told David Pearson of Fleming that he would fight 'tooth and nail’.

  Perhaps it was the realisation that, unlike so many other setbacks, this one could not be lightly shrugged off that caused the first crack in Maxwell's hitherto resolute image. The occasion was his appeal against the Panel's decision. Hearing his case was a senior judge, Lord Pearce, who sat with three representatives of the City. The grounds of the appeal were restricted to procedure; the facts could not be re-argued. Maxwell claimed that he had been denied natural justice at the original hearing because Shawcross, without notice, had considered and commented on Pergamon's internal affairs, which were beyond the issue of the bid. Paying no heed to the restrictions of the appeal, Maxwell began to re-argue his case. Pearce continuously interrupted. Eventually, when Maxwell still persisted, Pearce said firmly, 'I really can't understand your defence, Mr Maxwell.'

  Large tears began to roll down Maxwell's cheeks; he blew his nose several times and in a cracking voice said, 'I was born poor in a tiny village in a part of eastern Czechoslovakia which you have never heard of -' Pearc
e interrupted, 'Oh yes I do, Mr Maxwell. It's called "Klein Russland". I travelled there before the war.' Maxwell continued, 'All my family was lost in concentration camps. I fled the Nazis and joined and fought with the British army because I believed in Britain's justice and law and fair play, but I am now being denied it. . . .' Pearce was moved but unsympathetic to his plea. The appeal was rejected on 18 September.

  There were no lingering doubts that Maxwell was fighting for his very survival. The next arena was the EGM on Friday 10 October (it had been postponed by one day). Except for a brief lull when he disappeared on a brief trip to America, Maxwell maintained a barrage of publicity to secure the institutions' support, arguing that Pergamon's past success was synonymous with his personal management and that, until Leasco made an outright bid, it should be denied 'ownership on the cheap'. His only concession was that Leasco would be allowed to nominate three directors. During the early days, he was reasonably sure of success, especially after Norman Freeman, the manager of the ICI pension fund, intimated that he might offer his full support.

  Steinberg, in contrast, had never enjoyed much support in the City and few believed that the unknown American could successfully manage a specialised publishing company based in Oxford. After Maxwell's refusal to implement the Rothschild’s agreement, Steinberg had insisted on his complete removal. The Leasco package which was to be put to the shareholders would be to elect a new board of directors comprising independents and Leasco executives under an independent chairman. It was not an attractive package for the City fund managers who had lost money and disliked any interference with their quiet life. Leasco's refusal to bid for the remaining shares until the completion of an independent audit was considered to be irksome and its detailed explanations were too difficult to read and understand.