Maxwell, The Outsider

by Tom Bower

  Frivolities aside, Maxwell's abrupt change of the ultimate beneficiaries of his supposed fortune raised a serious issue. If he could alter them so easily, then were the minority shareholders of his public company, MCC, not also vulnerable to his whim since, in theory, the Liechtenstein trustees could secretly transform MCC into a worthless shell? Curiously, Britain's fuzzy law-makers and indolent supervisory agencies tolerated the confusions without demur. Operating in unusually murky waters was second nature to Maxwell whose manipulative skills were now to be displayed in France in his attempted purchase of Havas.

  On 22 June, Maxwell announced that an agreement to create a joint £150 million international media company with SGB was 'at an advanced stage'. There was no mention that he had purchased 5 per cent of Havas. That news emerged only on 7 July, provoking consternation in the Elysee: 'He had done everything without telling us.' For the first time, the French had observed Maxwell the predator, wheeler-dealer and juggler who did not feel himself answerable to anyone. He had intended to consult the Elysee but only after he had finalised the Suez/SGB deal. Instead, his random pot-shot triggered a series of unpredictable alliances which characterise the labyrinth of France's Byzantine politics. The hegemony of the network vaporised Maxwell's new patronage in the Elys6e.

  The campaign against Maxwell, the foreign nouveau riche, was initiated by Jerome Monod, the president of the Lyonnaise d'Eaux, a pillar of the French establishment and a member of the boards of both the Compagnie Suez and Havas. Monod epitomised the inherent conflicts of interest which are endemic in French commercial life. He is a man who quite naturally flexes his muscles through the Elysee and his principal ally in this case would be Andre Rousselet, a former aide and friend of the president.

  At the very moment that Maxwell's plot against Havas was exposed, Rousselet was himself negotiating with the president to buy a stake in the same company. The decision between Maxwell and Rousselet depended entirely upon the Elysee. Hence Maxwell had visited Jacques Attali on 17 June, hoping that he could persuade the president that his own bid was fair and honest. Initially he was optimistic but he failed to take into account the realities of well-established relationships: namely, Monod's influence and that on Mondays the president usually played golf at the exclusive St Cloud club with Rousselet. If was Colliard who telephoned Maxwell: 'You'll have to pull out. You've lost.'

  Maxwell barely reflected on the motives for the defeat. He had long ago immunised himself to ostracism and failure. The Havas bid, he believed, proved his unmistakable presence in France. Yet its outcome also confirmed a trend. Throughout 1988, all his major projects had foundered. He was frustrated and furious. He needed new allies in France. His search would be led by Jean-Pierre Anselmini, a managing director at the Credit Lyonnais who was appointed as a vice president of MCC responsible for the group's strategy. Anselmini's task would be to create the opportunities in France and quietly remove the obstacles. In the meantime, there were just eighteen months to fulfil his prediction of creating a £3,000- to £5,000-million company. Since his expansion in France had been thwarted, he looked again towards America.

  Maxwell's cultivated relationship with bankers had always been his speciality. Unlike other business people, they usually form a discreet fraternity around their customers' affairs and they are eager to encourage their clients to increasingly ambitious bids. Maxwell's relationship with Rothschilds in London had never recovered from the 1969 debacle but in New York he had established a relationship with Bob Pirie, the president of Rothschild Inc. who had represented both Hanson and Goldsmith in previous bids. Pirie, who had advised Maxwell on his bid for Harcourt Brace, prided himself that he could represent both Maxwell and Murdoch: 'Our clients have to trust me, trust my judgement and trust that I am looking out for their best interests.' An untypical banker, Pirie effected a particular gracious act which appealed to Maxwell. His Cuban cigars, English-cut shirts and allusions to East Coast establishment were precisely the style which Maxwell believed would win him acceptance in New York. Pirie was constantly looking for new opportunities for Maxwell, and the fees for himself.

  In July 1988, the American Macmillan publishing company was in the midst of a hostile take-over bid. The city was still mesmerised by the corporate raiders ruthlessly competing against each other to pay vast sums for every unsecured asset. On 21 July Maxwell joined the frenzy and formally announced that he would join the bidding. His adversary was Edward 'Ned' Evans, a Rhode Islander with an earlier career in steel and cement who, since buying the ailing publisher in 1980, had transformed its fortunes. Macmillan, he would subsequently complain, did not need to be taken over to be improved. 'But every company not nailed to the floor is up for grabs,' he later lamented.

  Maxwell's offer of $80 a share valued the company which had published Ernest Hemingway and Scott Fitzgerald at $2 billion. 'This is the Big One,' said Maxwell who, unlike his previous bid for Harcourt Brace, refrained from ensconcing himself in battle headquarters in a New York hotel. Instead, he gently stated that his offer was 'conditional on the Macmillan board's endorsement'. Initially, Edward Evans, chief executive of Macmillan's board, was noncommittal. Over the previous eight weeks, Macmillan had been fighting a hostile bid from the Bass group which had offered $64 per share against the quoted price of $50. The Bass offer had risen to $73 when Maxwell entered the fray at $80. His tactics had been astute. Macmillan was worth at most $70 a share. Bass's extra $3 was the expected premium in a hostile bid. The $80 bid would cut out Bass and allow Maxwell to pose as the 'white knight', anxious to help a fellow publisher. To reinforce the unhostile tone, Maxwell had even provided his jet to fly selected journalists for a briefing on board the yacht anchored at Bastia, Corsica. Dressed in a bright pink shirt and surrounded by bright silver-blue decor he explained: 'We wish this to be a friendly deal - the synergy is wonderful. We like Mr Evans and we like his management.

  He has done extremely well - not quite as well as MCC -but nevertheless an impressive performance,' He added that $80, was a 'fair price. I will not pay a stupid price for it.' After the smoke of the battle had cleared, the Americans would compliment Maxwell's initial and untrue statements, as 'cute'.

  Since nearly all the $2 billion offered was raised as loans from Credit Lyonnais and Samuel Montagu, Maxwell had smartly launched the offer from an off-the-shelf company, Mills Acquisition, to avoid the huge debt affecting MCC's balance sheet. And to avoid Evans deploying the Liechtenstein defence, he had switched 21.9 per cent of the Foundation's 52 per cent holding to Headington Investments which was registered in Britain at a theoretical cost of £297 million. Although MCC would still remain formally registered in the tax haven, his Rothschild bankers were allowed to meet Keicher and see what were presented as the trust documents. In turn, the Securities and Exchange Commission (SEC) in New York had been persuaded that the majority shareholding in MCC was now held by British subjects. No one at the SEC demanded further proof that the transfer between Maxwell wearing two hats was not irrevocable. But unknown to the Americans, Headington was really owned by an off-shore secret trust registered in Gibraltar, which led back to Liechtenstein.

  The initial reactions to the bid in Wall Street were uncomplimentary. 'Maxwell is not very well regarded in the United States,' said Bert Boksen, an analyst. 'He's a little like Crazy Eddie,' commented an American publisher. 'You pay attention because he's screaming at you, not because you like him.' Macmillan rejected his offer in early September.

  On 9 September, Maxwell raised his bid to $84 but there was already a hint of desperation. He wanted to know which managers were prepared to stay and the blunt reply was that if his bid succeeded they would depart en masse. The pundits, who had already all but written off Maxwell's chances, wrote the final chapter after Macmillan announced that it had hired Kohlberg Kravis Roberts, the inventors and doyens of leveraged buy-outs, to assemble a financial plan, raising huge loans, which would allow Macmillan executives to buy back all the company's shares. On 13 September, KKR annou
nced an offer of $85, including a 'poison pill agreement' whereby KKR's hefty $23 million bill would be paid for by Maxwell and a $860 million core of the business would be excluded from the sale. In New York, KKR's riposte was hailed as 'the knock-out blow'. Three days later, to dispel those murky waters, Maxwell raised his offer to $86.50 and appealed to the court to dismantle the defence.

  Hitherto the battle had followed a conventional pattern. But KKR's latest ploy threw Maxwell into a serious quandary. At $86.50, Maxwell would pay at least $300 million more than Macmillan was worth. His banks, especially Credit Lyonnais which was itself ambitious to break into the international market, were willing to augment their loans but the cost was increasing. Interest rates were rising and, more worrying, the price of MCC shares had fallen heavily. They were down to 185p, less than half the 395p one year earlier, and a massive 30 per cent worse than the market average. That bare fact dashed any hope of Maxwell raising extra money by another share issue.

  The City's scepticism was growing. Printing, which Maxwell repeatedly described as MCC's 'core business' providing 'a vertical strategy for long-term growth' would, according to the most optimistic forecast from Poole, earn relatively low profits by 1990. Worse still, there were definite signs that several major customers of MCC's new expensive printing plants had decided to move their business elsewhere when the contracts expired. Despite his earlier confidence, no other newspaper owner was prepared to contract his nightly print run to Maxwell's presses. Maxwell's much vaunted print strategy was souring. Simultaneously, Maxwell had also noticed that companies like Reed International, who had abandoned printing, were earning profits from publishing magazines and books. The pattern was world-wide. Publishing earned profits while printing was marginal. Maxwell began considering selling the print plants partly to pay for Macmillan and also to forestall the embarrassment when the print contracts were lost. His much vaunted strategy might be in shreds but he was not going to suffer another humiliating defeat in America. That sentiment was supported by Pirie: 'If you want to be in the media business,' advised the Rothschild banker, 'you've got to be prepared to pay the price.' Pirie did not add that he would earn higher fees if Maxwell won. Telling his client, 'You're paying top dollar,' Pirie did not discourage Maxwell's desire to go for broke.

  On 26 September, Maxwell raised his offer to $89. Two days later, KKR placed a counter-offer of $90.05 which Edward Evans accepted as final. It was the fatal mistake. According to the rules, Maxwell had to be given an opportunity to counter-offer. Evans had ignored that provision because at $90.05, KKR was paying $600 million more than the company was worth. Evans and KKR had reached their limit. Their only remaining weapon was to leak that as a three-time loser, Maxwell's ambitions could be written off. They had failed to reckon with Maxwell's determination.

  On 5 October, Maxwell's lawyers rushed to the Delaware Court to demand that Evans be forced to offer Maxwell another chance to bid, and to drop the 'poison pill' defence concocted by KKR. Simultaneously they announced that Maxwell had raised his cash offer to $90.25 which meant that Evans had denied shareholders the better offer. 'I'm in it to win,' said Maxwell unconcerned by the extra $600 million he was committed to pay. The battle was not about commercial sense but over a man's place in history.

  On that same day, 5 October, as the lawyers had filed their complaints in the Delaware Court, Maxwell's frustration in America spilled over into a major row with Francois Bouygues in Paris. Since Cox's departure, Maxwell had lacked any direct influence over TF1's management. The meetings of the strategic committee had in the view of another participant become 'contests between dinosaurs where Maxwell was angry that no one was treating him with the respect he believed that he deserved'. Maxwell's anger with Bouygues for failing to turn TF1 into a profit-machine by effecting dismissals of the conservative staff and producing new programmes equalled his contempt for the other board members. Unlike Maxwell and Bouygues, they were employees, unenterprising functionaries, even weirdos, who were simply thrilled to be part of the television world and were less concerned about profits. 'We were prepared to be patient for the evolution of change,' said one member. 'For us it is a long-term investment and a service to the nation. Mr Maxwell, of course, is not French and cares about profits and not about people or even the company.'

  During September, Le Lay had met Maxwell six times, including over a weekend in London, to explain TF1's problems and his future plans. Le Lay found Maxwell constructive, even admitting that he had 'written off his investment in TF1 because he realised that there would be no profits. At their penultimate meeting in September, Le Lay had raised the most sensitive issue. Francois Bouygues, he explained, would be retiring from the presidency at the next board meeting and intended proposing Le Lay as his successor. Maxwell voiced no opposition although he had neither forgiven nor forgotten Le Lay's treatment of Ian. But at the end of September, when there seemed to be no solution to MCC's low share price and the fate of the Macmillan bid remained uncertain, he began discussing a coup against Le Lay and Bouygues which would release his frustration.

  Maxwell's ally was Bernard Tapie whose juggling, publicity-seeking business style vaguely mirrored Maxwell's own, but on a very minor scale. Tapie resented Bouygues's rejection of his claim for a place on the main board. Instead he was the jester on the strategic committee and the butt of others' humour. On one occasion, when Tapie attempted, by tapping on the table, to interrupt a row between Maxwell and Bouygues, he received short shrift. 'To bang on the table,' growled Maxwell at his would-be ally, 'you've got to have a table to bang on and with your one per cent stake, you ain't gotta table.' Everyone roared, especially Bouygues because in his opinion Maxwell's 12 per cent barely gave him a table either.

  In business there are no friends, only temporary alliances. Towards mid-September both Maxwell and Tapie, for different motives, shared a dislike of Francois Bouygues. There had been rumours that Bouygues was ill and the company was vulnerable.

  After a fall in earnings, its shares were undervalued and whoever captured the main company would inherit control over the 25 per cent stake in TF1.

  On 28 September, Maxwell had arrived at Bouygues's home for breakfast. His visit was not to inquire about his adversary's health but because heavy trading in Bouygues's shares that week had raised the price and fuelled speculation of a fake-over bid. 'Can I help you?' asked Maxwell with his familiar benign expression. ‘I’ll buy some shares to support your position.'

  Bouygues grimaced. Since he controlled about 45 per cent of the voting stock, the offer seemed somewhat preposterous. His answer was accordingly cynical: 'I don't need any help, but I'll buy shares in your company if you're in danger.' Bouygues's riposte struck home. MCC shares at their four-year low suggested that Maxwell's credibility was under attack. As a tough street-fighter, Bouygues was uninhibited in declaring that Maxwell had a problem in Paris too. His guest departed with a bitter smile.

  The following day, to prove his strength and Bouygues's vulnerability, the news was leaked that Maxwell had bought a 5 per cent stake in Bouygues. Tapie had bought a smaller interest. 'When Francois discovered Maxwell's tactics,' recalls Le Lay, 'he phoned Maxwell and exploded.' At the weekend, Maxwell, tongue-in-cheek, explained his purchase to the Herald Tribune as a ploy to ensure that no one could capture control of TF1 by buying Bouygues: 'It looks like there may be a predator on the prowl for Bouygues. I don't want my friends pushed around.' Bouygues would later claim that Maxwell's raid was inspired by disgruntled government officials.

  The fourth meeting of TF1's main board was set for 11 October. The tension, which was already noticeable following Maxwell's share raid, rose as the clock neared 3 p.m. Francois Bouygues is a purist for punctuality and Maxwell, his son and two other board members were absent. They would arrive fifteen minutes later and together. Maxwell had invited them to lunch and delayed their departure. Bouygues was intended to interpret their joint arrival as a conspiracy.

  The screw tightened as the first i
tem was discussed. 'Why,' asked Maxwell, 'was the excellent profile of General de Gaulle screened after 10 p.m.? It should have been shown in prime time.' The reply was direct. 'Because audience research showed it was correct.'

  Next item: the move to new headquarters at Montparnasse. The contract for construction had been awarded by TF1 to Bouygues. It was the type of inter-company deal which Maxwell knew so well. 'I oppose this until the contract goes to tender,' said Maxwell who suggested that it was the first time the issue had been raised. 'It was discussed in September,' replied Bouygues pushing the past minutes to a shaking Maxwell. A patched compromise was agreed.

  At 5 p.m. the board reached the last item: miscellaneous. Bouygues announced that he intended to resign and nominated Le Lay as his successor.

  'Why was I not told about this before,' exploded Maxwell. 'It's not on the agenda.'

  'You can't say that,' screamed Bouygues pounding on the table. 'You can't say that you weren't told. You're a liar! I telephoned and told you.'

  'Rubbish,' snarled the bear.

  'But Mr Maxwell,' intervened Le Lay perplexed by the unprecedented twist, 'Yesterday you congratulated me on the appointment and asked if I was happy.'