Maxwell Communication

Corporation And Mirror Group

Newspapers (UK)
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K A J A L VA R S H N E Y
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About Maxwell
Communications

• Maxwell Communication Corporation was a

leading British Media Company.
• It was listed on the London Stock Exchange and
was a constituent of the FTSE 100 Index.
• The Company was established in 1964 as the
British Printing Corporation.
• In 1981 Robert Maxwell launched a dawn raid
on the Company acquiring a stake of 29%.
• The following year he secured full control of it.
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MAXWELL EMPIRE
 FR
About Debacle
• November 1991, Robert Maxwell was found drowned floating beside his luxury
yacht near the Canary Islands.
• Dec 1991 it was revealed that Maxwell had taken the following in order to keep the
companies afloat:
• £448 million in assets from the combined pension funds of Maxwell companies
• £388 million in cash and assets from Maxwell Communications Corporation (MCC)
• £97 million in cash from Mirror Group Newspapers (MGN)
• Investigations revealed that Maxwell’s group companies owed £2.8 billion to its
bankers.
• The company went into administration following the death of Robert Maxwell.
• The London based Maxwell Communication Corporation also filed the chapter 11
bankruptcy petition in New York.
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Reasons For Debacle FR

1. Acquisitions through Heavy Debts.

• The company borrowed $3 billion in 1988 to buy the US publishers Macmillan and
Official Airlines Guide.
• It was discovered later that Maxwell had pledged the same assets as collateral for
various loans.

2. Financial Difficulties and Diversion of Funds

• he Maxwell Empire kept afloat only by shifting funds around his maze,
misappropriating pensioner’s funds, and relentless deal making.
• Despite Maxwell’s eroding financial condition, he was able to pass annual audits.
• In 1991, Maxwell sold Pergamon and floated Mirror Group Newspapers as a public
company.
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 FR
3. Uncertainties following
the Death of Maxwell.
• The stocks of Maxwell
Communication plunged to
$2.18 on 5 November 1991
from high of $4.28 a share
in April 1991 and further
dropped to $0.63.
• The decline in stock value
was of special concern to
Maxwell’s creditors, since
most of the family’s 68
percent stake in the
company was pledged as
collateral for loans.
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Aftermath FR

• (1) Maxwell's death (1991) triggered a flood of instability with banks. The company
incurred heavy debts. His two sons Kevin and Ian struggled to hold the empire
together, but were unable to prevent its collapse.

• (2) The pension funds were replenished with money from investment banks
Shearson Lehman and Goldman Sachs, as well as the British government. This
replenishment was limited. The rest of the £100 million was waived

• (3) The son of Maxwell, Kevin was declared bankrupt with debts of £400 million. In
1995 Maxwell’s sons Kevin and Ian and two other former directors went on trial
for conspiracy to defraud.

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 FR
Flaws In Corporate Governance
(1) Domineering CEO
• Maxwell had a complete control over the companies of his empire.
• Ethical and professional standards be it governance of company or governance of
pension funds were relegated to the background for commercial advantages and empire
building.
(2) Ineffective Board
• The non-executive directors did little in discharging their responsibilities.
• Unrestricted movement of funds across group companies, pledging shares of a company
to raise funds for another company, excessive borrowings took place under the nose of
the board.
• It appeared that the board was helpless in the face of larger than life personality of
Robert Maxwell.
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 FR
(3) Lack of Transparency
• Assets of the company and pension assets which belong to the employees were
mixed.
• Creditors, shareholders and even the family members of Maxwell were not fully
aware of the corporate structure of the company

(4) Flaws in the Audit

• The auditors of the company failed to pick up the transfers Maxwell was making
from the pension scheme, even though they were in a position to do so.
• The Institute of Chartered Accountants in England & Wales (ICAEW) asked the
Joint Disciplinary Scheme (JDS) to investigate 35 complaints against the Maxwell
auditors and 24 complaints against four individual partners

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TIMELINE FR
Year EVENTS

1923 Maxwell is born as Jan Ludvik Hoch in Czechoslovakia

1951 Pergamon Press is established, publishing scientific journals and books

1964 Pergamon Press is floated on London Stock Exchange

1969 DTI inspectors appointed to investigate Maxwell’s publishing house Pergamon.

1970 Coopers’ John Walsh appointed to audit Maxwell’s main companies

1971 DTI Inspectors’ critical report

DTI inspectors say Maxwell could not be trusted to exercise ‘proper stewardship’ of a
1973
publicly quoted company

1974 Regains control of Pergamon

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 Year EVENTS
FR
Gains control of British Printing Corporation (BPC), later renamed British Printing and
1981
Communications Corporation (BPCC)

1984 Maxwell buys Mirror Group Newspaper

Bids unsuccessfully for US publishers Harcourt Brace Jovanovich; BPCC is renamed Maxwell
1987
Communications Corporation (MCC)

1988 Maxwell buys book and journal publisher MacMillan for $2.6bn

Ill-fated audit of Maxwell’s main companies undertaken; Maxwell attempts to disguise

1990
financial collapse of empire using secret ‘loans’ from Mirror Group pension fund
Purchases New York Daily News newspaper
1991
Pergamon is sold for £440m

1991 Mirror Group floated on London Stock Exchange

1991 Maxwell disappears at sea from his yacht

1991 Maxwell’s business empire collapses

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 Year EVENTS
FR
1992 DTI inspectors appointed to investigate MGN flotation

1995 Collapse of trial against Maxwell’s sons Kevin and Ian

1996 Walsh dies. Complaints against him dropped

JDS reveals complaints against four Coopers’ partners for their 1990 audit of Maxwell’s
1998
empire
Price Waterhouse, and Coopers and Lybrand merge to create the world’s largest
1998
accountancy firm
Price Waterhouse Coopers receives record fine from JDS for shortcomings in
1999
Coopers’ audit of accounts

1999 Coopers & Lybrand agrees to pay out £67.6m in settlement to Maxwell creditors

2001 DTI publish investigations into Mirror Group Newspapers

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