Maxwell, The Outsider

by Tom Bower

  Maxwell rose to leave. When cornered he usually changed tack or ran. On that night, there was no escape route: I'm leaving, Francois. You're attacking my honour.'

  Bouygues had no intention of releasing his grip: 'No. I notified you. You're lying.'

  'Retract that word or I'm leaving.'

  Bouygues could only win. 'Let's say, I didn't call you a liar. But nonetheless, I did notify you . . .' The board voted for Le Lay's appointment. The two Maxwells abstained.

  Eleven days later, on 16 October, Maxwell held a press conference aboard his yacht in Cannes to declare war formally on Bouygues: 'I'm not at all certain about the legitimacy of Le Lay's election.' In Paris Le Lay fumed: "That's it. We'll get him.' Eighteen months earlier, in happier times on board

  Maxwell's yacht in Cannes, Bouygues had described his partner as 'a mammoth'. Now was the moment to puncture the myth. Coolly, he set in motion discreet soundings with those who pull the levers of power. Maxwell, he suggested, should be removed from TF1.

  Unconcerned about the antics of a mere organ grinder, Maxwell returned to Britain. It was time to consider the future. France had been an amusing diversion but of little consequence. The real action was in America. The Delaware Supreme Court would rule on 2 November and the omens were promising. Macmillan had been unable to prove that the auction for the company had not been rigged in KKR's favour. He had given more than usual thought to the consequences of a $2.6 billion debt incurred to buy a company whose assets were worth at best $1.65 billion. He would announce 'a new strategy' but would insist that it had been planned long ago.

  It was late afternoon in London when the three Delaware judges handed out their unanimous decision in Maxwell's favour. The balance was decisively tipped but he kept his silence anticipating that KKR, whose reputation was at stake, might mount a new ruse. Less than twenty-four hours later, he knew that victory was his. Edward Evans, sad to be a victim of the eighties, recommended Maxwell's bid and sold his own shares at a hefty profit. Evans would later tell friends, 'When he came to the headquarters, I showed him around, gave him the keys, and left.'

  On 4 November, Maxwell appeared in New York to claim his victory. No reasonable man was inclined to begrudge him the pleasure of that hour. After all, only he had the task of finding the money. His solution confirmed every sceptic's suspicion: that Maxwell's strategy was just to win the next deal. 'Maxwell Communications', he announced, 'is placing all its printing plants up for sale.' That included BPCC which prints magazines, BNPC which prints the Mirror Group newspapers and all the acquisitions in France, Belgium and the USA. The much vaunted 'integrated core business' was no longer a core but a disposable: 'I am a publisher and not a printer ... I have been working on this strategy for years.' His audience could only wonder why they had never been told. Their hurrah was brief. Precisely six days later, Maxwell issued another statement. MCC in fact intended to retain 40 per cent of its printing plants. Control of the companies would be sold to its management. The reversal confirmed the character of the strategy: confused.

  16

  Robert Pirie hosted a small party to celebrate Maxwell's success in winning the Macmillan battle. Maxwell shone in this firmament. In the relationship business, or the Big Man's club, Maxwell liked to mix with fellow kings and Pirie, the eccentric patrician, understood precisely Maxwell's weaknesses. 'Plays him like a puppet,' sniped one of those who watched the banker's sycophancy. Pirie knew that Maxwell would not tolerate advisers who contradicted his wishes and wisely stayed out of the way of the moving train. Like an amateur psychiatrist, Pirie knew what Maxwell wanted and gave it to him. That night, Maxwell wanted to be surrounded by New York's rich and powerful. Pirie obliged, delighted to encourage Maxwell's disdain for the pompous bankers in the City of London and feed his belief that his future was in America. Since ninety per cent of MCC were American businesses, Maxwell was tempted to make a final move.

  On board his Gulfstream, call sign VR-BOB, flying back to London, Maxwell was unconcerned by two uncomfortable truths: that his company now owed bankers more than it was actually worth; and that his businesses were not producing enough money to pay off the loans. Every year, he would need to find $290 million to repay the interest on the $2.6 billion he had borrowed. Debts, Maxwell reasoned, were not problems but challenges to overcome. Long forgotten was his claim, uttered only months earlier, of his £1 billion stored in Liechtenstein. The Daily Mirror headline about that fortune -'It's all being given away' - seemed uncannily accurate although the recipients of the money were not the charities he mentioned. The notion of that El Dorado had evaporated when he borrowed the billions to buy Macmillan and the Official Airlines Guide rather than use his own money.

  The deadline to become a £3-£5 billion company was thirteen months away. Earnings were falling and he could no longer afford to buy companies to expand. His public credit was good enough to deny that he was short of money because banks were still willing to lend. Shareholders, of which he was by far the most important, would also not suffer. MCC's main attraction to investors was its unusually high dividends. But it was impossible to hide one truth. He had taken on too many other activities. Soon after he landed, he would publicly pledge: ‘I have taken on too much. I must get back to the core priorities of our business and ruthlessly prune back on peripherals.’ He would quote uncertainty about his health as the reason for his decision although, in reality, he excelled under pressure. As the helicopter landed on the Mirror building, the publisher's optimism was impregnable.

  Although the public image was of a man singlehandedly running his business, Maxwell could rely on trusted, long-serving and faithful advisers to earn profits away from the public eye. The most important were the accountants who were nurtured to ensure their fidelity and permanence. Unlike his other employees, they were not 'slaves' but colleagues who would and should never be dismissed.

  On the ninth floor was Richard Baker, MCC's deputy managing director, who was a sophisticated currency and money dealer. Nearby was Albert Fuller who sorted out the paperwork of the hundreds of millions Maxwell would regularly invest by personal phone calls in shares and gilts. Fuller was helped by Debbie Maxwell, a lawyer. Others nearby were managing the £300 million property portfolio. Together they were producing more real profits than the combined earnings of the thousands in publishing whom he employed. How that was shifted between the public and private companies depended upon his instructions to Robert Bunn, the faithful accountant who supervised his private companies. Of course Bunn's discretion was restricted. No one within the empire would ever be allowed to know more than a limited amount about Maxwell's operations and no one in headquarters could cross the boundary between the public and private interests except Kevin and himself.

  Maxwell's empire was constructed on the identical principle as twenty years earlier. At the centre was a publicly quoted company whose share price was the key to his operations. Surrounding that jewel was a constellation of private companies whose activities, like those of their predecessors in the sixties, were inextricably linked to MCC. But only Maxwell knew all the details, as the ownership of public and private assets was switched to cope with demands for cash. Knowledge was power and only his family could be trusted with more than a smidgen of the network of obligations which underpinned his operations. Among those excluded from the private companies were the auditors of the public company, Coopers & Lybrand Deloitte.

  Maxwell's relationship with Coopers was conducted by Reg Mogg, MCC's finance director. Hired in 1982, Mogg had proved himself a trusted keeper of the secrets. Although he would later protest, 'I wasn't Maxwell's patsy, I am a professional accountant who could sleep quite easily at night', Mogg read his master's mind perfectly. An ambitious, self-made man, Mogg understood how, quite legally, he could make the accounts of the debt-laden company seem profitable. Naturally, it was instinctive, creative work whose success depended upon his personal relationship with MCC's auditors, Coopers & Lybrand, and in particular Neil Taberaer, the se
nior partner responsible for MCC. Taberaer was always at my shoulder,' smiled Mogg knowing that, whatever the criticisms, the accounts had been formally approved by Coopers. 'The annual report was a most important document. That's what people knew about us,' says Mogg who agrees that Maxwell's credibility depended upon that glossy brochure.

  When the accounts were approved by Coopers, the next step was to encourage investors to buy MCC shares, which depended upon convincing the stockbrokers to advise clients that MCC was a good investment. In 1988, among the most important salesmen preaching about Maxwell's successes was Henry Poole, the analyst from the brokers Laing & Cruickshank. But ever since the Macmillan purchase, Poole's doubts were growing.

  Like all disciples who begin questioning their faith, Poole's reaction to his own concerns was violent. 'Henry's turned,' was the quip on the Laing trading floor. 'He's even advising clients to sell Maxwell's shares.' The news could not have pleased Maxwell. He was Laing's biggest client and his bankers, Credit Lyonnais, had bought the brokers. Ian Hay Davison, Laing's chairman, was summoned to Holborn. The meeting was tense. Laing's client explained that he expected his shares to be puffed and Poole was doing the opposite. Hay Davison, who had been responsible for investigating fraud at Lloyds insurance, was an unlikely candidate for intimidation. 'You've got bad ratings because of your accounts,' an eyewitness heard Hay Davison explain.

  The heart of the problem was to justify Maxwell's boast of 1985 that his corporation would generate sales of £3 billion to £5 billion by 1990. Every year since, he had aggressively reasserted his prediction and caustically damned those who queried his calculations. In 1987, Poole had publicly assured the City that MCC would earn pre-tax profits of £405 million by 1990. In March 1989, the profits were half that amount. Poole realised that, to achieve Maxwell's target, MCC would need to treble in size within nine months. Laing's directors agreed that producing optimistic forecasts was problematic. Poole stood down and Johnny Bevan, Maxwell's energetic broker, was hired to lead the charge. But even Bevan's talents could not repair the rot. Laing's salesmen were dispirited. 'No one wants to listen to stories about the Maxwell magic,' Bevan lamented. Investors in Maxwell had already lost too much money.

  As the American deals were analysed, the value of MCC's shares was falling. Within that year, they would drop from 395p to 167p. Ignoring the fall, Maxwell began raising loans by pledging his MCC shares as a security or collateral. Those loans were secured against 145 per cent of MCC's current share price. In other words, for each £100 that Maxwell borrowed, he had to provide £145 worth of shares. His agreement with the banks stipulated that if MCC's share price fell, Maxwell would be forced to give additional guarantees. As interest rates rose, Maxwell's fate became inextricably tied to the price of MCC's shares and compelled him to resort to a succession of stratagems to keep the price high.

  Maxwell's task was not inexorably difficult. Britain's regulatory authorities in the Stock Exchange, the Department of Trade and Industry and Bank of England were, in his opinion, staffed by third-rate bureaucrats whose proven indolence and incompetence had contributed to his good fortune. Others might say that his propaganda and secrecy had stifled their enquiries.

  The thirty banks with whom he dealt were also eager to part with their money. Bankers after all can make profits only if they lend the money which others have deposited. For all his faults, Maxwell had always repaid his loans and his relationship with the bankers, especially the National Westminster, was firmly established over the previous forty years. Bankers, however, are self-interested and notoriously gullible. Easily flattered by types like Maxwell, few had studied his history or his pattern of operations. Accordingly, they did not understand the significance of his decision to change MCC's financial year.

  MCC, Maxwell announced, would not as usual present its accounts for the year ending December 1988, but would extend them to March 1989. Maxwell used the two American deals as justification although the two companies were yet not part of MCC. Significantly, his private companies continued to end their financial years in December. To some, it was reminiscent of similar tactics he had used in the sixties which the DTI inspectors had condemned because it had allowed him to switch money and contracts between the public and private companies during those three months, artificially inflating Pergamon's profits.

  During March 1989, Mogg presented his preliminary assessment of MCC's accounts. The profits from publishing had fallen. Maxwell would need to include property sales, currency speculation and exceptional items to present a rosier picture, which would depend upon his personal arrangements with the private companies.

  The annual report put a brave face on the results. The pre-tax profits in the special fifteen-month period were £192 million on sales of £1.39 billion. The graph of profits, benefiting from the exceptional fifteen-month period, seemed to soar to a new record high, yet Maxwell, under pressure from the board, bowed to one reality.

  On 6 April 1989, the chairman announced that his hallowed sales target of '£3-£5 billion' by 1990 was 'meaningless' because the purchase of Macmillan and OAG had put him among the top ten media companies. The logic was baffling although his claim that profits from publishing were more 'succulent' than those from printing was certainly correct. Naturally, Maxwell ignored those who carped that his decade's endeavours were not ending in glory but were souring. However on the television monitors in his office, he watched the consequence of their criticism: MCC's share price was falling as the first debt repayments became due.

  Under pressure to explain his solution to the debt predicament, Maxwell revived the possibility that the Mirror Group would partly be sold to the public. But that course was hazardous. It might reveal his inter-company trading; the new public company would have to pay dividends, which was costly; and he would lose a source of easy loans. Flotation of the Mirror, he knew, was an option of last resort and therefore, having raised the possibility, he quietly dropped it.

  The only solution was to sell parts of what he had just bought. Despite both his own and Kevin's repeated assurances that Macmillan would not be broken up, he announced amalgamations and sales of $1 billion of Macmillan's 'peripheral' assets which included Macmillan's core educational publishing business. While former Macmillan executives were wondering why Maxwell had bought their company in the first place if it was now being sold off, Maxwell went in search of potential purchasers. His timing, uncharacteristically, was inopportune. The recession was beginning and, with one exception, customers were fast melting away. The exception was Maxwell himself.

  In the course of 1989, Mirror Group paid £270.3 million for MCC's printing presses. It was a generous price that Maxwell was privately paying for a publicly owned asset. Again, it was a familiar pattern of the sixties. Maxwell was pumping money into the public company to boost the share price. His dilemma was to find the finance to pay MCC.

  Among the other jewels which MCC was selling was a 44 per cent share of Berlitz, the profitable American language school, which was part of the Macmillan empire. In August 1989, Maxwell invited Goldman Sachs to sell the Berlitz shares and they eagerly accepted his business.

  The relationship between Maxwell and Goldman Sachs, which would become a sensitive factor in the controversy about Maxwell's survival as a businessman in the very hours before his death, had begun by accident in 1984. Robert Conway, sent from New York to establish Goldman's presence in London, rented office space in a Maxwell-owned property behind the Mirror building. Gradually the two men became acquainted.

  During the booming eighties, Goldman Sachs watched with dismay as their rivals pocketed the large fees of the corporate raiders like Drexel and Milken while they remained firmly excluded from those profits. Irritated, in 1988, they smartly stepped into the market and agreed to sell an international gold flotation for Alan Bond which had been rejected by other houses. Goldman lost a fortune. Despite the setback, Goldman managers anxiously sought the fees paid by active entrepreneurs. In the wake of the Macmillan tak
eover, Don Opatrony, a corporate finance executive of Czech origin, welcomed Maxwell's offer to float Berlitz. Not everyone in Goldman Sachs was enthusiastic about representing Maxwell but the promise of fees overruled any doubts. Maxwell, eager to consolidate his position in New York, welcomed his endorsement by the prestigious firm.

  Since Maxwell had decided that Kevin should run Macmillan, it was natural that both father and son should arrive at Goldman Sachs' Manhattan office for the first meetings. The disagreements began soon afterwards.

  Maxwell was concerned about two issues. First, that his French banking friends should have a slice of the business. That's not on,' he was told by Chuck Harris who was one of those assigned to manage the sale. Harris and the Maxwells would disagree continuously until the Goldman executive won the point.

  Their second disagreement was over the price of the shares. Goldman Sachs wanted to offer the shares for $16; Maxwell wanted $4 more. Since Goldman would pay for any unsold shares, the Americans' interest was to ensure that the price was realistic. 'You're just greedy Bob,' said Harris who began to fear that Maxwell was deliberately ignoring the interests of the minority shareholders. 'Both Maxwells behaved appallingly,' recalled one of the executives, 'but Kevin behaved worst of all. We soon hated them.'

  'Harris's main problem,' recalls another observer, 'was Kevin.'

  Goldman executives suspected that the thirty-year-old son, in responding to his father's challenge, was keen to prove his prowess: 'Kevin would ring Harris up at 4 a.m. and get him out of bed for nothing that couldn't wait,' says one insider.

  The father's games were more sophisticated. Summoned to London for a meeting, the bankers waited for an hour in the outer office before being called. Once admitted, the pattern was familiar. Their discussions were continuously interrupted by messages from government ministers delivered by Peter Jay, the office manager, or by the telephone: 'Yes, thank the president for his endorsement,' said Maxwell in a call which ostensibly came from the White House. 'That was all set up to impress us,' was the unanimous conclusion when the bankers emerged into Holborn.