Another memorable case was that of Robert Maxwell and the Pergamon Press.
Ever since Robert Maxwell slipped mysteriously into the Atlantic Ocean, his media empire has been rapidly crumbling. While Maxwell’s sons Kevin and Ian scrambled to prevent the conglomerate’s collapse, creditors in half a dozen countries were busy sorting out the tangled web of 400 interlocking companies that were woven together by the late tycoon.
But efforts to rescue the family business suffered one setback after another, including stunning revelations of possible fraud and double- dealing. Unable to keep the conglomerate, parts of which were publically traded, from unravelling, Maxwell’s sons called it quits and put the family’s privately held enterprises into receivership. Although the filing bought the family time, it did little to end the international row over Maxwell’s assets. The Maxwell empire, which ranged from such highly visible publications as New York City’s Daily News and London’s Daily Mirror newspaper to tiny entities like Nimbus Records, was the subject of investigations on both sides of the Atlantic, notably a criminal probe by Britain’s Serious Fraud Office (SFO). About 30 banks and other creditors lined up in what turned out to be a bruising humbug. Says Smith Barney analyst John Reidy: “Robert Maxwell left behind mysteries that may never be solved and a big, big mess that may never get unsnarled.”
Maxwell was deep in hock and struggling to keep his conglomerate afloat in the months before his death. The Czechoslovak-born press baron, who embraced socialism in the 1960s as a Member of Parliament, had run up $4.5 billion in debts to buy everything from American book publishers to British soccer teams to Israeli and German newspapers. But even before Maxwell was interred, reports of financial skulduggery in his shop began to surface. First came the startling revelation that the company was broke. Then came the discovery that Maxwell had pledged the same assets as collateral for various loans.
The most explosive bombshell came when it was revealed that the media magnate had secretly – and improperly – “borrowed” $767 million from worker pension funds at the two public concerns under his control. The money went missing and remained unaccounted for. This most unsocialist of acts prompted the Mirror’s conservative archival, Rupert Murdoch’s Sun, to run banner headlines asking cheekily, Mirror mirror on the wall, who is the biggest crook of all?
The latest revelations revived speculation linking Maxwell’s death to the dire financial condition of his media empire. Although the preliminary autopsy report claimed the 300-lb. 68-year-old died of “natural causes,” the exact circumstances of his death are still unknown. Even Maxwell’s Mirror reported that at the time of his death the magnate was under increasing pressure to meet debt obligations. But while the events leading up to his demise remain obscure, one point is now very clear: Maxwell’s wealth was more financial illusion than reality.
The Maxwell family’s conglomerate was loosely organized into three clusters. The two publicly listed companies included the Mirror Group, which published the Daily Record, the Sunday Mail and Racing Times, as well as the Mirror newspapers. The flagship company, Maxwell Communication, controlled such concerns as Macmillan books, the Official Airline Guides and P.F. Collier encyclopedias. The Robert Maxwell Group was privately held and owned 100% by the family. Its operations included the Oxford United Football Club and publications like the European, as well as stakes in newspapers in Israel, Hungary and Kenya.
But all three holding companies were also directly and indirectly linked to dozens of other family-controlled enterprises. Maxwell’s creditors were unaware of the nature of the corporate structure because the man whose wealth was estimated at $1.8 billion incorporated family trusts in Liechtenstein, where tax laws and disclosure rules were virtually non-existent. Not even Maxwell family members were aware of the web’s scope. Said son Kevin, 32, who succeeded his father as chairman of Maxwell Communication until he stepped down. “Clearly we didn’t know everything, and clearly he had a style of business where probably you had a need to know rather than a sharing of information all the time.”
As a result, the senior Maxwell was able to pile debt upon debt with no one, apparently, the wiser. His purchase of a British investment fund, First Tokyo Index Trust, illustrated how Maxwell used financial sleight of hand and guile to finance deals. Through Headington Investments, a finance company under his control, Maxwell borrowed $100 million from Swiss Bank Corp. to buy the entire First Tokyo portfolio. Maxwell was supposed to turn over the portfolio to Swiss Bank as collateral for the loan. But Maxwell did not repay the loan, nor did he deliver the securities as promised. Meanwhile, he had already pledged the assets as collateral for loans made to another Maxwell company. The deal was investigated by British law- enforcement authorities.
Swiss Bank wasn’t alone. Dozens of banks were left holding the bag. Among those with the heaviest exposure: Midland, Lloyds, National Westminister, Barclay’s, Sumitomo Trust, Credit Lyonnais, Citicorp and Bankers Trust. While most banks were plain old gullible, some claimed that they were duped. “We weren’t wearing blinders,” explained a banker. “But maybe we should start asking borrowers to take lie-detector tests.”
Months before Maxwell vanished from his 180-ft. yacht, there was a growing fear that he was having trouble meeting his repayment schedule. With the American and European economies starting to sour, Maxwell was faced with declining cash flow and debilitating debt payments. Despite his eroding financial condition, however, he was able to pass annual audits by leading European accountants Coopers & Lybrand Deloitte. That enabled Maxwell to add on more debt in March when he purchased the Daily News from the Tribune Co. by assuming as much as $35 million in obligations.
As concerns about Maxwell’s financial strength mounted, stock in Maxwell Communication weakened. After reaching a high of $4.28 a share in 2015 the price plunged to $2.18 by Nov. 5, 2015 the day he disappeared. By the time trading in the shares was suspended, the price had dropped to $0.63. The decline in stock value was of special concern to Maxwell’s creditors, since most of the family’s 68% stake in the company was pledged as collateral for loans. That stake, valued at nearly $2 billion in May, was now worth only $440 million.
• To be continued
J.K Randle
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