But efforts to rescue the family business suffered one setback after another in recent weeks, including stunning revelations of possible fraud and double- dealing. Unable to keep the conglomerate, parts of which are publically traded, from unraveling, Maxwell's sons called it quits last week and put the family's privately held enterprises into receivership. Although the filing will buy the family time, it will do little to end the international row over Maxwell's assets. The Maxwell empire, which ranges from such highly visible publications as New York City's Daily News and London's Daily Mirror to tiny entities like Nimbus Records, is 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 are lining up in what promises 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 last week, 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 is missing and unaccounted for. This most unsocialist of acts prompted the Mirror's conservative archrival, Rupert Murdoch's Sun, to run banner headlines in Thursday's edition 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 in its Thursday edition 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 is loosely organized into three clusters. The two publicly listed companies include the Mirror Group, which publishes the Daily Record, the Sunday Mail and Racing Times, as well as the Mirror newspapers. The flagship company, Maxwell Communication, controls such concerns as Macmillan books, the Official Airline Guides and P.F. Collier encyclopedias. The Robert Maxwell Group is privately held and owned 100% by the family. Its operations include 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 are 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 are virtually nonexistent. 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 last week: "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, illustrates 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. last summer to buy the entire First Tokyo portfolio. Maxwell was supposed to turn over the portfolio to Swiss Bank in October 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 is being 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 claim that they were duped. "We weren't wearing blinders," explains 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 April, the price plunged to $2.18 by Nov. 5, the day he disappeared. By the time trading in the shares was suspended last week, 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, is now worth only $440 million.
Maxwell did recognize that some assets would have to be sold to help pay off debt. His sons, including Ian, 35, have attempted to pursue that policy. So far, they have been able to raise more than $700 million by selling such assets as Macmillan Computer Publishing for $158 million and Berlitz International for $265 million. But with the deal market in a slump, there have been few takers and even fewer good offers. To attract buyers, the Maxwells have practically had to conduct a fire sale, selling assets for only a fraction of their worth. The Official Airline Guides has been on the auction block for months, for instance, but its likely buyer, Britain's Reed International, will probably not pay more than $500 million. Maxwell paid $750 million for the guide three years ago. Now even some of the deals thought to have been completed are in doubt. Last week company executives reported with some embarrassment that they were unable to locate stock certificates for Berlitz International that are integral to the completion of the sale of that firm to Fukutake Publishing of Japan.
While the Maxwells managed, by hook or by crook, to raise enough to meet a $750 million payment due in October 1992, they conceded they would be unable to meet a $1.3 billion obligation due in October 1994. Unsatisfied creditors, however, may be able to go after the Maxwell family fortune. According to a leaked report by Bankers Trust and Coopers & Lybrand, Maxwell assets are estimated to exceed liabilities by about $350 million.
For now, though, it will be up to the courts to sort out the mess. The Maxwells acted to place the private company, the Robert Maxwell Group, into receivership after all attempts to raise fresh outside capital proved hopeless. John Talbot, the administrator appointed by the High Court last week to oversee the family's private holdings, said Maxwell's remaining assets were likely to be put up for sale. That includes the Maxwells' stock in Maxwell Communication as well as their 51% stake in the Mirror Group.
It could also include the Daily News. But that is not entirely certain. Only hours after the Maxwells declared insolvency, the New York City publication filed its own petition for bankruptcy in the U.S. in an effort to thwart any possible sale of the paper by the British administrator. In their determination to keep the paper open, Daily News unions expressed a willingness to make wage and other concessions. The paper was financially crippled earlier this year by a five-month strike that cost $1 million a day and that ended only after Robert Maxwell bought the paper in March. The News still remains unprofitable, perhaps prohibitively so. In a meeting with Daily News staff last Thursday, Kevin Maxwell vowed to continue publication: "There is absolutely no question that the News will come out." However, it remains unclear whether Maxwell can prevent the paper from being sacrificed to pay debts. Several potential buyers, including Mortimer Zuckerman, owner of U.S. News & World Report, have already expressed interest.
On the other side of the Atlantic, workers at the Daily Mirror expressed dismay and anger after it was revealed that Captain Bob, as the swashbuckling Maxwell was dubbed years ago by the British humor magazine Private Eye, had looted their pension fund and treasury in order to prop up his personal fiefdom. The transactions, which took place in the months before he died, are being probed by British authorities. Last Friday SFO agents raided the family headquarters at Maxwell House in search of documents relating to the missing pension funds. Still, bemoans Ossie Fletcher, the former editor of the Mirror Group's Sporting Life, "we always assumed that the pension fund was untouchable."
Not everyone shared Fletcher's now shattered faith in Captain Bob's empire and the media mogul's fitness as a manager. Two decades ago, British regulators investigating his 1969 attempt to sell Pergamon Press concluded in a report that the murky relationships among Maxwell's privately held businesses made him specifically unfit "to exercise proper stewardship of a publicly quoted company." A principal author of that report, Sir Ronald Leach, now 84, said last week, "If anybody had taken the time and trouble to read and take notice of our report, they would have seen that what has been happening recently was happening 20 years ago." The final collapse of his empire suggests that Maxwell was less a media mogul than a master of a shell game.
CHART: NOT AVAILABLE
CREDIT: TIME Graphic by Steve Hart
CAPTION: NO CAPTION