Maxwell, The Outsider

by Tom Bower

  Maxwell's diary was crowded with meals and meetings. Strand House, a neighbouring building in Holborn, was bought to be partially converted into a home and the roof to be transformed into London's only private heliport. The two-floor flat, on which no expense was to be spared, was designed as a miniature Xanadu, filled with priceless objets d'art and garish, gold-plated, modern appliances. Visitors found that it was less a home than a testament of wealth, where taste was not allowed to interfere with the spectacle.

  Yet one man who was never present at the parties but whose ghost had nevertheless hung over everything for the previous two decades of Maxwell's life was Rupert Murdoch. Maxwell had striven to catch up with the Australian and his ruby anniversary party marked the moment when he believed that his opportunity might finally come. Within five years he would, if not eclipse Murdoch's empire, at least rank as an equal. In 1985, News Corporation's annual turnover was £1.5 billion, four times the combined equivalent of BPCC and Pergamon. Maxwell's target was to become one of the world's ten largest 'global information and communications' companies within five years. To realise that ambition would rank alongside Sir Edmund Hillary's ascent of Mount Everest.

  Six days after the anniversary party, BPCC held its annual meeting. In his report, Maxwell unveiled how the company would be transformed from a traditional printing and publishing conglomerate into an integrated, technology-based corporation which offered newspapers, banks, brokers and packagers worldwide access through satellites to the most modern, computer-fed, colour presses and a wide assortment of other technical services. Everything depended upon increasing the fortune in his kitty to finance a buying spree for expansion. To some it seemed that there was no strategy other than rushing helter-skelter to be the biggest. The 1984 annual report explained, in his familiar vocabulary, where the money was to come from. Under the heading, 'Another Outstanding Year', Maxwell described BPCC's 'dramatic profit growth', which had risen before tax by 71.5 per cent to £37 million. But that huge increase was due, not to printing or publishing, but to property speculation. Although media companies do not usually depend upon property for their income, Maxwell said that property deals had become, and would continue to be, 'a significant profit centre for the Group'. His aggressive crusade did not start auspiciously.

  In October 1984, Maxwell made a new £44 million cash bid for John Waddington, which he still identified as ripe for asset-stripping and incorporation within BPCC. Over the previous twelve months, he had denied that he had bought extra shares or that he had any intention of buying the company. Victor Watson, Waddingtons' chairman, had been sceptical of those hand-on-heart denials and tried to discover the fate of Maxwell's shareholding. The trail passed through the hands of Tiny Rowland of Lonrho but disappeared in New York. New shares, he discovered, had been purchased and were secretly owned by Maxwell's private American company, Pergamon Press Inc. (PPI). Consequently, at the outset of his latest bid, Maxwell owned a 23 per cent stake in Waddingtons. Piqued by the guile, Watson says, 'We decided to treat him to his own medicine and by God we wanted to hurt him.'

  The merchant banker at Kleinwort Benson detailed to fight Maxwell on Waddingtons' behalf was Christopher Eugster, a mild-mannered, upper-crust Englishman who, with his colleagues, had perfected a strategy for defending companies against unwelcome predators. Eugster was surprised that BPCC could afford to pay for its spate of recent acquisitions because its borrowings, although cleverly dressed up by the accountants, were high. Since Maxwell was offering to pay the £44 million in cash, Eugster set out to follow the money trail. BPCC was owned by Pergamon, which was a private company, but Pergamon, as revealed in BPCC's annual report, was ultimately owned by the Pergamon Holding Foundation which was a trust incorporated in one of the world's most secret sanctuaries, Liechtenstein.

  Maxwell had used trusts as tax havens for thirty years but few had noticed in 1982 that the ownership of Pergamon had moved from New York to Liechtenstein. Among Maxwell's reasons was the reform of American banking laws which had undermined the original guarantee of secrecy and freedom from taxation. The state of Liechtenstein, in contrast, promised its clients total anonymity since its law did not require that a trust be registered and the state did not provide a public record which indicated that a trust even existed. Such is the perfection of the service to guarantee anonymity that Liechtenstein law does not require the creator of the trust to identify who are the intended beneficiaries and even allows the founder to sign in a nominee name. Accordingly, the Liechtenstein government can honestly state that it remains unaware who created the trust and to what end, although the law requires the founder to promise that his trust has no criminal purpose. Nevertheless, Liechtenstein is an ideal location for invisibly amassing and dispensing a fortune or even concealing the reality that there is no fortune whatsoever and there are only debts which are guaranteed by other assets. Liechtenstein was simply ideal to avoid answering awkward questions.

  Maxwell's decision to cloak his activities in the secrecy of Liechtenstein was already public knowledge when Eugster began searching for ruses in Waddingtons' defence. The magazine Private Eye had four months earlier mentioned the transfer but such are the vagaries and weaknesses of British journalism that at the time the item passed without comment. Eugster consulted Anthony Cardew, a public relations expert retained by Waddingtons, about exploiting the Liechtenstein connection and received an ecstatic response: 'This story has got legs. It's going to run and run.' The fifty-six square miles of Liechtenstein represented the antithesis of everything Maxwell publicly claimed to espouse. Highlighting his use of a tax haven was the ideal weapon to embarrass a man who was a self-proclaimed socialist, whose newspapers thrived and survived upon exposing the intimate details of others' lives, and who campaigned on the slogan 'Britain First'. Eugster and Cardew dressed up the old as the new and hinted to friendly Fleet Street journalists that here was an area which was worthy of investigation. The first of a series of stories appeared at the beginning of December.

  One week later, Dr Walter Keicher, a plump, ageing lawyer in Vaduz, the capital of Liechtenstein, was identified as the representative of the Pergamon Stiftung. When approached to reveal the trust's secrets, Keicher reacted with the embarrassment which might be expected of a young maiden tactlessly invited to lose her virginity. His doors were politely slammed and he grabbed for the telephone to call London. Maxwell could no longer ignore the intrusion but was furious that a take-over battle had once again degenerated into a smear about what he believed were his private affairs. In a statement, he condemned the 'outrageous and irrelevant smokescreen' raised by Waddingtons, which 'obscures the straightforward issues'. Watson countered that the obfuscation was caused by the Liechtenstein ownership of Maxwell's companies. Since it was impossible to establish the ultimate ownership of Pergamon because of Liechtenstein's laws, claimed Watson, no one knew what hidden financial liabilities Pergamon had incurred. 'If it was all as clear as Mr Maxwell says, then why does he keep it so secret?' he asked.

  At the beginning of the second week of December, Maxwell's bid was delicately poised. He had already attracted 15 per cent acceptances which, in addition to his own 23 per cent, placed him in a stronger position than one year earlier. He would win the prize and humiliate Watson if a 15 per cent stake owned by Warburg Investments and held on behalf of the Sainsbury Group's pension fund were sold to him. As so often in his dealings, Maxwell had set a deadline of 13 December for acceptances and was convinced that Warburgs were bound to sell to him as the highest bidder. There was only the matter of disposing of the Liechtenstein embarrassment.

  On 10 December, Ansbachers issued a statement on Maxwell's behalf about Liechtenstein. Keicher, it said, had represented Maxwell's interests for 'over thirty years and it is well known that the persons ultimately entitled [to the trust] comprise a number of charities and relatives of the respective grandparents of Mr and Mrs Robert Maxwell not resident in the United Kingdom'. The statement raised more questions than it answered. A
lthough it was consistent with Maxwell's oft-proclaimed assurance that his children 'would not inherit one penny', it was pointed out that since his children were all French citizens (because they were born in France), it was possible that under Liechtenstein law they could be deemed 'not to be resident in the UK' and therefore inherit their father's business. Indeed, Liechtenstein law might not even apply because the secret trust document might contain a unique definition of 'residence'. The very reason for Maxwell's seeking the protection of Liechtenstein was to allow the trustees to enjoy the freedom of writing their own rules and it would be consistent with Liechtenstein's laws for Maxwell secretly to retain control over the trust. But the statement did explain why Maxwell had been anxious to correct his own front-page article in the Daily Mirror on 14 July 1983, which had declared that he was 'proud to be the proprietor of this group of publications'. A short time later, he had stated: 'I am the publisher, not the proprietor.' The legal difference was important for tax purposes in Britain since it was Pergamon Media Trust which owned the Mirror. But since no one had seen the Liechtenstein trust documents and therefore could not authoritatively contradict his assertion until after his death, his denials were not treated seriously. To Maxwell's irritation, the mystery began seriously to undermine his ambitions.

  On 12 December, however, Eugster's exposé only partially contributed to Maxwell's discomfiture. During that week, Maxwell had held a series of conversations with a senior member of the Sainsburys board about the sale of the pension fund's 15 per cent stake in Waddingtons. The tone of his remarks irritated the executive and triggered, just before the deadline expired, the sale of the shares to Waddingtons' bankers, Kleinworts. 'Maxwell knew that he blew it,' says a close adviser. Others blamed Ansbachers for failing to secure the stake. Maxwell conceded defeat but instead of consoling himself with the profit on his shares, his row with Watson rumbled on in public for some months under the heading in a circular, 'Damn the Truth - a New Waddington Game'. 'His lectures about the responsibility which a director owes to his shareholders and employees could have been called "Pot calls kettle black",' recalls Watson, who embarked on a popular lecture tour explaining how he had fought off Maxwell's bids.

  The publicity surrounding Maxwell's defeat combined with the loss in circulation of one million newspapers in the Mirror Group was not enhancing his image at the end of 1985. The reverses were reflected in the accounts. BPCC's profits had fallen from £37 million to £25 million because the property deals which one year earlier had been described as a 'significant profit centre' had actually lost the company £1.8 million and other anticipated profits in publishing had dived, because of industrial disputes, from £4.3 million to just one quarter of a million pounds. The annual report minimised those reverses and Maxwell optimistically predicted that the worst of the expensive closures and redundancies were over. The report also contained an extraordinarily ambitious prediction: 'The aim of this reorganisation is to accomplish, from a British and European base, our great objective of successfully becoming a multi-faceted worldwide information and communications enterprise with revenues of £3/5 billion by 1990 with profits to match.' In 1985, BPCC's turnover was £265 million and gross profits were £79 million. Maxwell had forecast that there would be an eleven- to eighteen-fold multiplication of sales and profits within five years. Twenty years earlier, Oliver Marriott had said of Pergamon's huge profits: 'These are the sort of returns which all industrialists dream about.' The same could describe his new ambitions.

  The first stage of his expansion plan was BPCC's purchase of Pergamon's 361 scientific journals, which in 1985 had earned £19 million profits. Automatically, BPCC's profits in 1986 would increase by 70 per cent. Because Maxwell's public company was buying his private interests it was necessary to assuage those who might be suspicious of intercompany trading. Bankers Trust was commissioned to value the journals independently and it set the price at £238.65 million. To reconfirm that this was a fair assessment, Maxwell announced that there had been 'stiff competition' from overseas buyers for Pergamon's journals 'but BPCC had won'. BPCC, of which Maxwell was chairman and chief executive, paid Pergamon, of which Maxwell was chairman, a new issue of 107.5 million BPCC shares. That meant that once more Maxwell personally owned over 70 per cent of the company and could embark on the next stage of his plan, which was to earn cash by quick deals.

  In spring 1986, Maxwell was involved in so many bids that it was quipped, 'Maxwell has more fingers in more pies than most people have fingers.' By buying strategic stakes in companies which were in the midst of takeover bids, he hoped to profit by selling to the highest bidder. He was acting as an impromptu arbitrageur, when the term was still fashionable, posing as the 'white knight'. Ostensibly he would arrive to save a company from an unwelcome bid but the subjects of his warm embrace soon noticed that his bear-like arms had gradually tightened around their throat. The self-styled saviour would become a predator. 'There is no secret strategy,' commented Maxwell as his frantic burst of bids and deals provoked questions about his idiosyncratic methods, 'other than to make money.' The first intervention concerned Britannia Arrow, a financial group, and the second was for Extel, which provided financial information and confidential printing services. In both cases, Maxwell placed himself in the middle of a take-over battle to exercise decisive power and derive substantial profit from the predicament of others; and in both events he became allied with David Stevens, the chairman of United Newspapers, which had recently bought the Express newspaper group.

  Stevens, whose diminutive stature and cool personality contrasted with Maxwell's, nevertheless shared his occasional partner's ambitions and some of his characteristics. 'Their combined aggression and rudeness is awesome,' recalled Michael Newman, the chief executive of Britannia Arrow, who, through Geoffrey Rippon, the former Conservative minister, initially appealed to Maxwell for help but was eventually forced by Stevens to resign. 'Maxwell was burned at the beginning,' said Newman, 'and appealed to Stevens for help. At the end, Stevens's profit was Maxwell's loss.'

  'There is no friendship between those men,' according to Richard Marsh, who sees Maxwell, Stevens, Murdoch and Rothermere at the regular Reuters board meetings and the innumerable official functions which newspaper owners attend. 'They are street-fighters who don't particularly care if they are liked or hated. They have a common interest in forming temporary alliances and, whenever it suits them, to engineer another's downfall.'

  Maxwell's bid for Extel started in his traditional manner. Extel was fighting off a bid from the Demerger Corporation and was hoping to attract the support of an Egyptian financier, Ashraf Marwan, who owned a decisive shareholding in Extel. Early in the morning of 12 February, Alan Brooker, Extel's chairman and an employee of the company for twenty-eight years, received a phone call from Maxwell. 'This is to inform you', said the voice, 'that you *;re no longer dealing with Marwan but with me. I have bought his stake. I think we should meet. I would like everything to be friendly and conducted in a gentlemanly manner.' Brooker is quite honest about his reaction. 'I was frightened. We were an independent agency and Maxwell is an interventionist. We knew his presence would frighten away our clients, who expected independent advice. Maxwell was as much an anathema to them as to us.' Brooker refused Maxwell's entreaties and expected a formal announcement of his bid. Instead, after the bid failed due to a breach of the Takeover Panel's regulations one month later, the Panel ordered Maxwell's bid to be frozen for one year.

  'During that year, he harassed, chased and upset us,' recalls Brooker. He sought advice. 'Victor Watson was very helpful and we decided to use the "Liechtenstein defence". After all, the shareholders and employees were entitled to know who would own their company if Maxwell's bid was successful.' Like Watson, Brooker spent a fortune on lawyers in an attempt to unravel the ownership, only to discover that Liechtenstein's reputation for secrecy is well deserved.

  On 13 March 1987, Maxwell wrote to Brooker to let him know that he intended to launch a bid the foll
owing month. Brooker replied with an onslaught of actions under the Companies Act 1985 to establish who was controlling the Extel shares owned by BPCC and the Pergamon Holding Foundation Corporation. On 31 March Maxwell responded to what he interpreted as harassment: 'I entirely fail to understand the pressure which Extel seeks to attribute to its demands [sic] . . . and reserve my right to draw this matter to the attention of shareholders of Extel and to the attention of the regulatory authorities including the Secretary of State.' For Maxwell to threaten to appeal to the British government to protect a Liechtenstein trust seemed to Brooker richly ironic, but his bewilderment was compounded on 5 April. Keicher, the Liechtenstein lawyer, wrote to say that the Pergamon Holding Foundation did not control the Extel shareholding. Control, he explained, was exercised by its subsidiary, the Pergamon Media Trust, but 'neither our Foundation nor Pergamon Holding Corporation (which holds shares in PMT as our nominees) are so interested. This is because neither our Foundation nor PHC are entitled to exercise or control the exercise of one-third or more of the voting power of PMT.' Keicher had added to the confusion and accordingly Brooker asked Maxwell to explain the contradiction between the Foundation lawyer's insistence that he did not control the Extel shares and Maxwell's claims. On the same day Maxwell replied, 'There is no mystery,' but he revealed nothing more. Instead he attacked Brooker's use of the Liechtenstein ploy, criticised him for not giving the Extel shareholders the chance 'to choose to take a bona fide cash bid for their shares' (although Maxwell had still not made a bid), and finally announced that he would not after all bid for Extel. Clearly the exposure of the Liechtenstein connection was successful, thus exposing Maxwell's Achilles heel for those who wanted an easy defence in future bids.