Maxwell, The Outsider

by Tom Bower

  Eventually Harris was assigned to other duties. The flotation nevertheless passed successfully on 13 December 1989. If Goldman Sachs in New York decided that Maxwell was a customer they might want to lose, that option was closed. By then, Goldman were inextricably linked to Maxwell through their London office and in particular by Eric Sheinberg.

  Eric Sheinberg, a partner of Goldman Sachs in London, is an accomplished broker whose performance had won privileged access to Maxwell. 'Eric's a trader's trader,' they sang in Goldman's new Fleet Street headquarters, as Sheinberg huddled over the phone giving advice to Maxwell, reputed in the market to be among the biggest individual players.

  Informed estimates suggest that, communicating with each other throughout the day from mobile phones as they both criss-crossed the globe, Sheinberg was handling, at any time, $50 million of Maxwell's money. While at Goldman's headquarters in New York they might have worried about Maxwell as a customer, Sheinberg was delighted about his client's hyperactivity. Maxwell naturally expected something in return for the business which Sheinberg received. Namely, support for MCC shares.

  In the anti-climax which followed the City of London's euphoric 'Big Bang', those watching the monitors in the brokers' trading rooms across London say that they could see at a glance who was offering to buy Maxwell's shares. Goldman Sachs's price for MCC shares was marginally better, a suggestion which Goldman deny. Every day at rival brokers Phillips and Drew, Derek Terrington heard his market makers shaking their heads, 'Goldman's on the bid again.' The timing was always the same and sellers waited for the moment. Daily, at 2.30 p.m., just as the New York exchange opened, Goldman Sachs, according to Terrington, 'hoovered up all the available MCC shares.'

  Sheinberg and Maxwell were aware of two salient facts. Despite Maxwell personally owning over 50 per cent of MCC [and his ownership would grow to 68 per cent], the number of MCC shares which could be traded was still substantial. Secondly, Goldman, although not mainstream British brokers, were sufficiently formidable that their decision to buy or sell could influence a share's price. Sheinberg knew that it would be beneficial to Maxwell if Goldman actively traded in MCC's shares. That is what occurred in 1989. MCC's price steadied, which was welcome news to Maxwell. Sheinberg was admitted as one of Maxwell's intimates. Sheinberg was in the company of a man whose range of contacts was genuinely remarkable.

  Driving one night in his red Rolls Royce along the Strand to a dinner at the Savoy, Maxwell was gratified to read a short personal note, starting 'Dear Bob' and signed 'George', from the American president thanking him for some advice he had volunteered after a journey to Moscow. His reading was interrupted by the car's telephone. On the line was President Mitterrand. More talk about the turmoil in Moscow and Eastern Europe. Here was real evidence of his importance as a diplomatic broker. He was of an age and experience to play the international statesman, although to some it seemed that he seized upon any opportunity to jet to any location to be greeted by the head of state, regardless of the host.

  On 2 October 1989, Maxwell flew to East Berlin. The communists' control was faltering as East Germans abandoned the socialist paradise travelling via Czechoslovakia to the west. Poland had already negotiated its freedom from Moscow and most East European experts were confidently predicting the end of Soviet control.

  Maxwell's flight to the communist capital was, Berlin's officials would later say, at his own request. Erich Honecker was struggling for survival. To Honecker's staff, Maxwell seemed oblivious to the political swirl within the walled city. Maxwell's relationship with the embattled politician was close. In 1981, on the twentieth anniversary of the wall's construction, Maxwell had written in the preface of Honecker's autobiography which Pergamon had published: ‘I have the honour of presenting to the public ... the life and work of Erich Honecker.' One chapter was a self-congratulatory account of how the author had masterminded the wall's construction, which, he concluded, 'fills me with satisfaction'.

  Maxwell had returned to Berlin to re-cement that relationship. Just one month before the wall would be breached, Maxwell, in a stage-managed ceremony, presented the German with two leather-bound Pergamon volumes of the Encyclopaedia of the German Democratic Republic, priced at £110 per set. As the cameras whirred in the Central Committee's headquarters, the dictator and the publisher, ignoring the political earthquake in the streets outside, greeted each other as old friends. Maxwell had afterwards told reporters that Honecker had been 'a reformer all his life' and was 'in very good nick'.

  Maxwell's presence could be interpreted as a sign of naiveté or as an indication that he was a fair-weather friend. He would later claim that he was interceding at the West German government's request to negotiate about the plight of East German refugees. But the reality was more mundane. Maxwell enjoyed the welcome accorded to statesmen at foreign airports - the waiving of passport formalities, the swift passage of government limousines through the town and pomp of the officialdom. Standing alongside the famous appealed to his vanity but also encouraged his conviction of being an agent of influence. But his visit to Berlin was spurred by commerce as well. Pergamon had invested heavily in producing vast quantities of the books which were stored in a Berlin warehouse and he hoped to recoup some of the money before it was too late.

  Four months after the communist collapse, Maxwell would be asked to explain his relationships with the communists. Hinting at a secret agenda, he replied, 'I indispensably contributed to saving eastern Europe'. He added that the series of autobiographies by the communist tyrants always included disclaimers. They are hard to find. 'Have you never made a mistake?' he asked rhetorically. ‘I regret not saying publicly how critical I was to their faces.'

  That apparent and unusual humility was tarnished when he then minimalised his profits in eastern Europe: 'Over forty years I only sold a few books and journals'. The notion, he asserted, that Pergamon's early fortune relied upon communist trade was 'black propaganda'. A few weeks later he would quantify those profits as, '0.001 per cent of my business . . . It was done at the request of the US government. It was a five-year programme which was loss making.' Ignoring Pergamon's own 1962 annual report which boasted making £50,000 profits in trade with the USSR, Maxwell concluded ‘I did no business with eastern Europe before the Berlin Wall came down.'

  The opposite was the truth. Despite his claims to unique advantages, Maxwell did little business in eastern Europe after the wall came down. His energetic flights around the newly liberated nations resulted in remarkably limited investments: a half share in the Berliner Verlag; a minority stake in two Hungarian newspapers; a management school in Bulgaria; and a host of activities but not investments in the Soviet Union.

  By common consent, Mikhail Gorbachov is the protege of Yuri Andropov. The KGB chairman had analysed that the stagnant Soviet economy needed reform. Gorbachov was groomed as the party's architect of the changes which would remove unnecessary controls, encourage innovation and introduce some limited capitalist ideas. But like all the members of the communist hierarchy, Gorbachov was ignorant about capitalism and sought friendly advice. In 1985, Maxwell, stepping into the shoes of Armand Hammer, offered to fulfil that requirement. But there was one difference between the two entrepreneurs. While Hammer brought real business to Russia, Maxwell brought promises which he hoped would engender political influence.

  Soon after Gorbachov's appointment, Maxwell searched for profitable ventures in a country where his reputation and contacts were unique. At Moscow's Sheremetevo airport, he could not fail to impress the waiting Kremlin officials as he stepped off his personal jet surrounded by an entourage of subordinates. Soviet officials responded eagerly to Maxwell's promise of a 'mountain of gold': management courses, offers to equip scientific institutions with computers, proposals for joint ventures to provide 'online' technology via satellite, and speculation about a variety of newspapers.

  Among the journalistic endeavours which he initiated was a business and cultural magazine, a television station
and a 'Heritage' agreement with Raisa Gorbachov and the Cultural Foundation. In his wake gasped a second generation of bewildered Russians. Maxwell's broken promises were partly due to his precarious finances but also his recognition that any money invested in Russia would be lost forever. His real interest was to influence Russia's fortunes by brokering on behalf of western political leaders.

  Nothing stimulated Maxwell more, when in conversation with a cast list which included George Bush, Margaret Thatcher, John Major, Francois Mitterrand, Helmut Kohl and Gorbachov, than beginning a sentence by referring to his tete-a-tete, just hours earlier, with another member of that club.

  It was to become a broker of influence in Moscow that in 1986 Maxwell invested in Moscow News, a pathfinder of perestroika, which was edited by Yegor Yakovlev a friend of Gorbachov. Yakovlev claims that he accepted Maxwell's offer to print Moscow News because he believed that Maxwell had received payments laundered through a Soviet press agency for printing 50,000 of the leaders' books, although no one ever discovered how many had been produced. 'Maxwell was trusted by the communists,' says Yakovlev. Maxwell's commitment was naturally equivocal.

  'Maxwell broke with us when we criticised Gorbachov for the suppression of Lithuanian nationalists in February 1990,' recalls Yakovlev. The row was ferocious. 'Maxwell tried to impose his views and we rejected it,' says Yakovlev, who published a highly defamatory attack on Maxwell. Enforcing the laws of defamation in Russia, Maxwell knew, was difficult. Others hint that Maxwell was dissatisfied with the quality of the Russian staff whom he was subsidising in London. The grounds for the row are irrelevant now although the rancour against Maxwell still lingers in Moscow.

  Russia, for Maxwell, was a source of political not financial dividends and his appearance alongside Gorbachov in Minneapolis, USA in June 1990 to create the $100 million 'Gorbachov Maxwell Institute' to unite the world's scientists, proved that he was certainly reaping rich rewards for his scrapbook. Photographs and newspaper headlines about the two men were reproduced worldwide. When, following a toast-laden lunch, both men departed from Minneapolis, Maxwell forgot his promise to donate $50 million to the Institute.

  In May 1990, Maxwell had never felt more confident of his future. The phrase, 'the Maxwell empire' tripped naturally off people's tongues. At times he even felt like an Emperor.

  Regardless of the debts, his publishing business was prospering, especially the newspapers. For the first time, the Daily Mirror had dented the Sun's supremacy and was earning one million pounds a week. The credit was due to Maxwell's cost cutting and anticipation that colour printing would win readers - a judgement which Murdoch had originally spurned and was struggling to reverse.

  Launching new activities was always Maxwell's palliative to pressure. A cheap diversion would be to hurtle out of London by helicopter or jet for a business meeting, a day on his yacht or, better still, consultations with a statesman. A more expensive diversion would be a take-over bid or the launch of a new newspaper.

  Surrounded by his symbols of wealth and prestige, Maxwell announced a $362 million bid for the National Enquirer, America's biggest selling tabloid; a $100 million bid for a group of three other American tabloids; and an offer of £120 million for a stake in the remains of Alan Bond's Australian newspapers. All three bids failed.

  The successful alternative was to create his own newspaper and on 11 May he hosted a glittering breakfast launch for the European in the New Connaught Rooms where thirty-one years earlier Rupert Murdoch had sabotaged his bid for the News of the World. Now, ten stone heavier and, on his reckoning, one thousand times richer, Maxwell addressed an assortment of diplomats, politicians, bankers and journalists about his latest venture, a newspaper which he described as 'the triumph of vision over common sense'.

  Since the London Daily News had proved a costly humiliation, most anticipated that his boast, ‘I am the European', signalled a similar disaster. There was supporting evidence for that prejudice. It was nearly three years earlier that he had heralded a tabloid European daily. Subsequently, there had been so many failed attempts that just to have delivered a handsome weekly colour broadsheet was judged a success, despite its limp content.

  That morning, at the champagne breakfast launch, he adopted a Churchillian tone to transmit his philosophy. Europe, he declared, was about to regain the leadership of the world and, based on what his promo-video called, 'the ideals of the French Revolution', he intended to make 'a small contribution' to that process. Although Maxwell's critics would find it occasionally difficult to credit the publisher with either unselfish principles or a steadfast philosophy, there was little evidence which disputed his commitment to forging a united and peaceful Europe in the summer of 1990. After all, he had urged the Labour Party forlornly twenty-five years earlier to abandon its ideological antagonism towards the European Community. If Maxwell thought that a newspaper could change history, the journalists who were now invited to interview the publisher were too self-interested to dispute the importance of their trade.

  To Maxwell, the launch of a newspaper implied opportunities of personal publicity. His self-confidence, never restrained in the past, overwhelmed his interviewers. Visitors who were invited to his duplex adjacent to the Mirror building in Holborn were mesmerised by the sheer scale of gold and green marble, specially woven carpet, tapestries and seventeenth-century French paintings. Other interviewers, invited aboard his helicopter and/or jet recorded, as Maxwell desired, that he possessed incalculable wealth and, at his own insistence, that he was an individual exercising 'power'. Less satisfying perhaps were the accompanying headlines: 'The ego spreads his wings' and 'The ego has landed'. But the hidden agenda was successful.

  Just as some City analysts were concluding that his company was 'clearly dancing on the edge', Maxwell had positioned himself as a powerbroker of infinite wealth. Discarding his earlier platitudes about not interfering with his editors, he emphasised his role at the European: 'I'm in charge. I'm the editor-in-chief.' He had learned the lessons of the London Daily News, he explained, of 'stupidly leaving it to the professionals'. It was both Maxwell's strength and weakness that his perception of the truth, erroneous as it might be, remained unchallengeable. His treatment of subordinates, especially his editors, had crystallised: 'When I fire someone it is like a thunderclap. My primary duty is to hire and fire editors. I treat them like a Field Marshal.'

  Many professional journalists greeted the European as economically unviable but the publisher was committed to spending £50 million. His editor, Ian Watson, a lean Scot who had formerly worked at the Sunday Telegraph, had redesigned the paper to allow Maxwell the pleasure of assuming responsibility for its fine looks. Aware of the fate of other Maxwell employees, the editor had wisely fixed to his wall the life-cycle of an important product: '1. Wild enthusiasm. 2. Disillusion. 3. Total confusion. 4. Search for the guilty. 5. Punishment of the innocent. 6. Promotion of the non-participants.' After fourteen months, Watson would have gone through the whole cycle and be sidelined. By then sales were languishing at 250,000 instead of flourishing at the anticipated one million and the losses were estimated at £10 million annually.

  But before his dismissal, Watson witnessed and related the legends of his proprietor. Like the night that Maxwell, impatient because no key was immediately available to open an office door, successfully crowbarred his entry; or the conversation which was overheard between Maxwell and a tardy supplier of computer terminals: 'Have you ever been circumcised? Well, you soon will be unless you're here with those terminals by this afternoon. And what's more, I'll throw away the big bit.' Two hours later, the terminals were being installed into the very floors where the ill-fated London Daily News was born and died. But on this occasion, despite the losses, Maxwell's commitment seemed solid. Unfortunately, the recession had just hit the natural market for his publication.

  The noticeable casualties of the recession were the eighties' glamour boys whose empires, built on loans or manipulation, became victims of soaring
interest rates. As the scandals - Guinness, Barlow Clowes, Polly Peck and Blue Arrow - were investigated and prosecuted, other flamboyant businessmen's activities were scrutinised - including Maxwell's. Suspicion was aroused by Maxwell's debts which he claimed in June 1990 were down to £1.9 billion. The first repayment of $415 million was due on 23 October 1990 and could only be raised by selling parts of the empire. The suspicions were fuelled by doubts about the actual value of his empire which was directly linked to the value of MCC's shares.

  As MCC's share price fell, Maxwell took an unusual risk. On 14 August, he sold to Goldman Sachs in New York a 'put-option' for 15.65 million MCC shares for 30 November 1990. In August, MCC shares were quoted at 170p, and Maxwell had effectively promised Goldman that, fourteen weeks later, he would buy from the brokers 15.65 million MCC shares at 185p. Maxwell's object was to encourage Goldman Sachs to buy 15.65 million MCC shares immediately - at the lower price then quoted - so forcing up demand for the shares. The incentive to Goldman Sachs was the guarantee that Maxwell was a certain buyer for those shares. Maxwell gambled that the 'put-option' would influence the stock market and MCC's price would increase to at least 185p.

  The gamble was particularly sensitive. Maxwell's manoeuvre covered the two months before MCC would announce its 1990 results. As a director, Maxwell was legally forbidden during that period to buy MCC shares either in his own name or anyone else's. But according to this plan, Maxwell was not technically purchasing shares. It was a clever device which distorted the market.