by Tom Bower
In Chicago, Charles Brumback, president of the Tribune Company, understood the difference between his own company and Maxwell's. 'We were looking at a fifty-year investment. He was sixty-seven and wanted to enjoy a piece of his lifetime's ambition.' It was a vanity purchase.
By 13 March, Maxwell clinched a deal which supposedly saved $72 million a year on costs. 'He's a tough negotiator who understands the problems fast,' praised McDonald that night. Now he admits that 'Maxwell could have got more concessions. We weren't hurt as much as we might have been.' The immediate cost to Maxwell was paying $1 million every week for the newspaper's losses and to guarantee paying the remaining lay-off costs which could amount to $50 million.
'We're in danger of soon making a profit,' Maxwell smiled as he walked down to waiting newsmen in the lobby. His red bow-tie seemed incongruous below the plebeian blue Daily News baseball cap. In classic Maxwelliana, he announced a deal which was 'historical and unprecedented'. Watching from the side as Maxwell basked in the publicity, Hoge understood the new owner's motives.
'Cap'n Bob bites the Big Apple,' screamed his newest acquisition. 'Brit saves Daily News,' blared a rival's headline as the Great Saviour allowed himself to be sucked into a rapacious publicity machine which blitzed the white knight with memorable adulation. Maxwell, the star, was surrounded by genuine admirers.
Ten floors above, surrounded by a legion of lawyers, Hoge would spend two hours putting his signature on to more than a hundred documents concerning taxes, inventory, liabilities and the one for the sale itself. After Maxwell had signed a token document, Hoge suggested a party to introduce the new publisher to the city's powerbrokers.
New Yorkers are not easily impressed yet few remained unswayed by the Briton's style. Living on board the Lady Ghislaine which had hurriedly sailed across the Atlantic and was moored not far from the United Nations building, Maxwell was featured as he desired: the mega-tycoon, interrupted by phone calls, receiving a parade of shoeless guests in the splendid lounge bedecked with photographs of the publisher greeting world leaders. He was not averse to being compared with Randolph Hearst.
The return of the Daily News was a glorious moment for Maxwell. Every television and radio station beamed his voice across the city declaring his love for New York, just as on earlier occasions he had declared his love for Holland, Canada, Russia and Israel. Over the following six months, he pledged, he would remain as a 'hands-on' publisher. Hoge duly appeared with the city's leaders who, shoeless, paid their respects to the new publisher. Maxwell's presence was felt and nowhere was it more prominent than on his own newspaper's front page where he solemnly declared himself to be 'a peacemaker'.
Once inside the News's building, the returning strikers discovered that the jovialities were strictly confined to the streets outside. Telephone operators were cursed for failing to man the switchboard twenty-four hours a day. Others were cursed for failing to put down tools and greet their new employer. Among the first to be fired were 130 security men, spluttering bewilderment about who would protect the middle management from the ire of the returning strikers. Little did they realise that the managers were the next to be fired. Maxwell, they would now learn, understood only two relationships: that of customer and supplier, and master and slave. The peacemaker made his mark: 'When I call, I require instant service.' Somewhere from beyond a voice counselled, 'When Maxwell shouts "jump", just ask, "how high?'"
Meetings, orders, summonses and declarations poured forth from a man whose task was herculean. Restoring a newspaper's morale, motivation and style required energy and leadership which were Maxwell's forte. This was a rerun of the Daily Mirror; a challenge which only Maxwell was either sufficiently courageous or foolhardy to undertake. With time and money, he was sure of success.
In the first days the omens were not good. Important writers were still deserting; advertising remained poor; and the value of the Tribune's shares zoomed by $1 billion just for having paid Maxwell $60 million for getting rid of the problem. Only gradually would Maxwell realise that this was not Britain. That his ban on overtime would need to be revoked. That the replacement for the managers would need to be ex-union men. That unless he remained in New York, his revolution would dissipate. All that was ignored. For, as the representative of a new constituency, his real desire was recognition.
Throughout those negotiations, Maxwell knew that Hoge was invited at the end of that week to the celebrated 'Gridiron' dinner at the Capital Hilton in Washington. The hosts were the nation's top satirists and their guests were the president, senators, judges, bankers and the Great and Good of America. Maxwell wanted to attend that dinner. Indeed, some in the Tribune camp believe that Maxwell's haste to sign the agreement with the unions was in order to qualify for the invitation.
The occasion required tails. Having just risked $100 million, which he did not have, Maxwell naturally showed no hesitation in requiring a courier to be dispatched by Concorde from London with his best suit.
Having enjoyed the most expensive meal of his life, Maxwell stayed in Washington overnight. The following day, Hoge was invited to a private lunch for about twenty-five where President Bush was guest of honour. The new owner of the Daily News ensured that he was seated next to the president. He gloried in the recognition. Never had he featured more in newspapers. The extravaganza bore the hallmarks of the Last Hurrah.
Intoxicated by the publicity, Maxwell returned to London where his fortunes reflected his dazzling New York success. Even in Maxwell's career, the frenzied succession of announcements as he unfolded his latest strategy was unprecedented. For Maxwell, turbulence was a palliative to his problems. The hyperactivity provoked relief while simultaneously producing a smokescreen to conceal the crisis from outsiders.
Yet paradoxically, it was at that moment that he needed an outsider to bestow credibility upon his empire. The first of his proclamations was therefore the most unexpected.
On 24 March, Maxwell announced that he was resigning as chairman of MCC and would hand over the task to a 'senior City figure' to whom his two sons would be answerable. The decision was presented as Maxwell's determination to pass on the inheritance while he expanded his newspaper interests, managing the Mirror Group, whose flotation was finally imminent, and saving the Daily News.
Five days later, the sale was announced of Pergamon for £440 million to his Dutch competitor, Elsevier. Since Pergamon was valued in MCC's 'intangibles' at £260 million, its purchase price, Maxwell would thereafter quote that profit as proof that MCC's valuation was not exaggerated, although he would be asked to repay £45 million. 'The proof of the pudding is in the eating,' said Richardson to a sceptic.
Selling a 'core business' refuelled speculation by critics who remained unaware that on 27 March, Maxwell had pledged 26 million MCC shares to Goldman Sachs as a collateral for a £25 million loan. That loan was not disclosed and the circumstances seemed odd. The loan was made by Goldman Sachs in New York. Under American laws there was no need for disclosure. But under British laws, a loan by a foreign bank needed to be disclosed. So if the deal was arranged through New York to maintain secrecy it failed. When four months later Goldman in Britain recognised their mistake, the loan was immediately disclosed. That disclosure revealed that for one brief moment, Goldman Sachs owned no less than 13 per cent of MCC worth £143 million and that £106 million of that amount was as collateral for the loans. The temporary secrecy served Maxwell well. His star seemed once again to be rising.
By the month's end, Michael Richardson had finally secured the agreement of Peter Walker, a fellow director in his broking house, to become chairman of MCC. Walker, who had recently announced his intention to retire from politics, was a self-made millionaire and former Conservative minister who had regained the City's respect despite his own controversial past. Having secured Walker's agreement, Richardson understandably had one more point to raise.
'Bob,' purred Richardson, 'Peter Walker has agreed to become chairman.' Maxwell voiced delight. 'But th
ere is a slight embarrassment,' continued Richardson. 'Peter finds it difficult to accept the position while his own firm is still owed fees. As you know there have been repeated reminders. Could we remove that problem?'
Maxwell hit the phone. 'Why are we still owing Smith New Court their fees?' he raged at a minion. 'I've told you so often to pay.' Richardson smiled at the familiar performance.
News of Walker's appointment was interpreted by some as the reason why MCC's share price began to rise. The Sunday Telegraph's description of Maxwell as, 'one of Britain's most successful businessmen in the past decade . . . one of the most outstanding performers of the year' was precisely the puff which Maxwell desired. Some believed his repeated bluff, 'I haven't got an appointment with my bankers until October 1992.' They forgot his appointment with the bankers of his private companies.
Ten days later, tucked inside a circular about the sale of Pergamon, was an admission that MCC's profits, for the first time, would fall because the sale of assets was proving difficult. Yet MCC's share price was still rising. Within two weeks the price shot up from 150p to 223p.
Although in real terms, the price was still only half the 1984 value, the sudden increase was not natural. Goldman Sachs were buyers although the brokers dispute that they were the most aggressive in the market. Goldman however admit that they have not discovered whether they bought shares on Maxwell's behalf. It was not a coincidence that the publication of the prospectus to float the Mirror Group was imminent.
Samuel Montagu was not Maxwell's first choice to mastermind the Mirror Group's flotation. At least two other City merchant banks had been approached and rejected. When Montagu accepted, Maxwell was grateful that someone was willing to take the estimated £12 million fees. Heading the operation was
Andrew Galloway, a director, who was appointed in December 1990 - the past six months had not been easy.
Over the previous five years, Maxwell had regularly predicted the flotation only to announce a delay while he wrestled with the dilemma of whether he should allow teams of bankers and accountants to trawl through his private company, prying into the myriad of inter-company deals which had so usefully concealed his financial problems. But the debts of the Macmillan legacy had left no alternative. By the time the accountants from Coopers were allowed to see the books, Maxwell's staff had disentangled the private and public company deals and eliminated any traces of sweetheart deals.
Galloway and Montagu's deputy chief executive, Ian Mackintosh, were summoned to Maxwell's office. The normal long wait ensued before they were admitted. The bankers' tight timetable was not helped by their client's first words delivered in his uniquely sonorous tone: 'The company is worth £1 billion.' It was not. Both the recession and the 'Max Factor' put its value at half that amount. Settling the disagreement would be acrimonious and time consuming. There were constant phone calls, day and night, as the owner tried to persuade the bankers to risk a higher price than they advised. To the bankers' advantage was Maxwell's financial plight. 'Our biggest problem, Bob,' said one of the more courageous of the team, 'is you.'
British fund managers, explained the banker, guided by their anti-Maxwell sentiment, would resist the offer's natural attractions: 'They didn't like Maxwell retaining the majority of shares. And then they didn't like seeing how much of their money he would keep.' Eventually Maxwell was bound to accept the banker's argument.
It fell to Tony Carlisle of Dewe Rogerson, the communications advisers, and Terry Connor, of the brokers Smith New Court, to overcome the 'Max Factor'. Their programme was brief. Maxwell toured six Scottish institutions in one day and was presented to potential London investors at three dinners in Claridges. On one occasion, Maxwell appeared at the dinner by satellite from New York. Asked by one guest about his debt, the tycoon snarled, ‘I’m not answering stupid questions like that', and ordered the satellite to be disconnected.
'They weren't terribly successful,' admits one of the advisers. Many of the conversations followed a similar pattern:
'Don't you think, Mr Maxwell, that you've invested too much in the printing presses?'
'What the hell do you know about printing?' the master salesman asked the fund manager. Maxwell could no longer tolerate a challenge, even from a customer. But he remained confident because the fund managers, 'men who are paid to have good manners', concealed their distrust.
Publicly Maxwell spoke about 'giving Mirror Group workers a chance to share in the profits' but he knew it was exaggerated sales talk. In an interview with the Sunday Times, on 14 April 1991, repeated to analysts, Maxwell claimed that the Mirror's Holborn headquarters, worth £100 million, would be included in the sale. It was untrue and sparked an unusual proliferation of newspaper comment about his, 'secrecy, deviousness and refusal to conform to expected behaviour'.
One aspect of the Mirror launch would remain unrevealed until four months after the flotation. Under the heading 'Key information', the bankers had mentioned in the prospectus that the Mirror Group was owned by Robert Maxwell Holdings, 'whose ultimate parent is Headington Investment'. Headington was a company suitably registered in Britain but it was not the ultimate parent. The 'ultimate' owner, as set out in the prospectus was the Liechtenstein Trust which allegedly held 'non-voting' shares in Headington. The bankers were suggesting that Maxwell controlled the votes of Headington, but since the bankers refused to reveal whether they had seen the Liechtenstein trust deed, there remained an element of doubt. Moreover, it was later revealed that in between Headington Investments and the Liechtenstein trust was yet another trust called the InterEuropean Trust which was registered in Gibraltar.
The bankers would tell inquirers that the Gibraltar link was known but not mentioned because 'as long as Maxwell controlled Headington, it wasn't relevant'. Everyone not employed by the bank in the flotation 'could not recall' when the Gibraltar connection became apparent. Others believed it was omitted because it would seem suspicious. 'We were not sorry that we did not buy the shares,' says one fund manager.
One aspect of the prospectus which did not arouse public controversy at the time was the section describing the Mirror's pension funds. In 1984, when Maxwell bought the Mirror, he had realised the potential value of the pension fund because it possessed more cash than was legally required. Accordingly, Maxwell had realised that as an employer, he would be excused paying contributions for some time, allowing the use of that money for other purposes. Another surplus of £149.3 million had also, according to the 1991 prospectus, built up by 1990. How that surplus arose is still not clear because it depended upon the valuations of the investments bought by the fund managers. It was the valuations and the investments which aroused the alarm of Don Wood, an executive of the Association of Mirror Pensioners.
Until the prospectus was published, Wood had not realised that Maxwell had removed the trade unionists from the board of the trustees of the common investment fund. Their replacements were Kevin and Ian Maxwell. Accordingly, there were in Wood's view insufficient independent fund managers. Equally worrying, management of 80 per cent of the pension fund had been taken over by a Maxwell company, Bishopsgate Investment Management Limited. The remainder was also partly managed by a Maxwell-owned company. In their wisdom, the Maxwells had decided that the pension fund should invest in Maxwell-owned companies, principally MCC. In Wood's view that placed the pension funds at risk and he began lobbying Maxwell as chairman of the trustees for reassurance that the funds were not endangered. Simultaneously, he wrote to IMRO, the government's watchdog, alerting the regulators to his concern. Their response, received in mid-October, was intended to be reassuring. In a seventy-five page letter, Maxwell's lawyers outlined the success and security of the fund's investments. IMRO seemingly also endorsed Maxwell's assurances. Effectively, Wood's complaints were ignored amid Maxwell's self-congratulation about his achievements.
Maxwell's flourishes about transforming the unprofitable newspaper company and multiplying his £90 million purchase price five-fold within seve
n years were true. He had performed similar miracles upon the British Printing Corporation and Pergamon. Less flattering was the 19 per cent decline in the Mirror's circulation since 1984 compared to the Sun's 10 per cent.
Many continued to blame the owner's interference in the newspaper for that decline. In February 1990, Roy Greenslade, a senior editor at the Sunday Times, was appointed editor of the Daily Mirror. Like so many, Greenslade accepted Maxwell's offer with the conviction that, unlike his predecessors, he would be able to withstand the owner's demands. Reality arrived swiftly when, as usual, Maxwell inquired about Greenslade's intentions: ‘It was the day that the Russians invaded Lithuania. He rang from his yacht. I explained that there were some horrific pictures from Vilnius.
' "So what?" he asked.
'"Well, Bob, what appears to be happening is a virtual invasion of the country.'"
Before Greenslade could complete his sentence, Maxwell interrupted, 'We must not abandon Gorbachov. I will decide.'
'But news is news, Bob.'
'You're talking nonsense. Don't you realise that Gorbachov wouldn't do anything without ringing me first?'
Greenslade credits himself with steadfastly refusing to publish fanciful stories supplied by Maxwell, such as his prediction that the Gulf war would end within forty-eight hours, whereas in fact it would continue for weeks; and his rejection of Maxwell's request not to mention the jailing of Gerald Ronson, a personal friend. Like most proprietors, Maxwell expected an editor to curtsy to his vanity and power. Editorial interference at the Mirror was not unusual. Greenslade's error, having accepted Maxwell's employment, was in failing to curb his professional pride.
