Debt-Ridden Maxwell Empire Is Collapsing : Publishing: British court takes control of family holdings. N.Y. Daily News seeks bankruptcy protection.
The Maxwell publishing empire collapsed Thursday beneath a heap of debt, driving the New York Daily News into bankruptcy court protection and hoisting a score of celebrated publishing and communications properties onto the auction block.
Four weeks after financier Robert Maxwell’s death at sea, his sons Ian and Kevin asked the British high court to appoint administrators to run the family’s two major private companies, which have debts of $2 billion.
Within hours of the announcement in London, directors of the New York Daily News, owned by the Maxwell family, filed for Chapter 11 bankruptcy protection in a move that analysts said could either protect the famed American tabloid from the troubles overseas or hasten its demise.
In Britain, a company’s placement into administration can be a step before receivership and often helps avoid outright bankruptcy. An administrator receives complete power to reorganize the business with the aim of saving all or part of it.
Arthur Andersen, the accounting firm named as the administrator in the Maxwell case announced that the family’s controlling shares in the empire’s two major public companies--Mirror Group Newspapers and Maxwell Communication Corp.--were for sale. The shares are held by the two private companies put into administration: Headington Investments and Robert Maxwell Group.
Financial experts here speculated that the decision to sell off the Maxwell assets means that the Mirror Group Newspapers--four in London and two in Scotland--will be put up for sale to raise money to pay off the Maxwell family’s crushing debts.
It also was expected that the Daily News in New York and a weekly, the European, will be offered for sale. But it is questionable whether the two money-losing papers will find ready buyers.
Administrator John Talbot, of Arthur Andersen, said the Daily News and the European will keep publishing “at the moment.”
Daily News executives were insisting that Maxwell’s sons would hang onto the paper and turn a profit next year.
Indeed, Kevin Maxwell, who took charge of the Daily News after his father’s death, said Thursday that the paper is “absolutely not” for sale.
He flew to New York from London Thursday and met with Daily News executives.
“We are here actually to work out a viable long-term plan for the creditors, the employees and the shareholders,” said Maxwell, 32.
But the European was served with a legal writ at its London offices that likely will freeze its assets. Sources at the paper said it will be closed unless a buyer is found.
Accountants speculated late Thursday that the worth of Maxwell’s complicated network of companies--most of them in publishing--would be considerably less than the debts he incurred during a series of worldwide purchases in the late 1980s.
The collapse of the empire came a day after the shocking news that Maxwell had been using assets--possibly as much as $800 million--from his British newspapers’ pension funds to pay off debts.
Journalists at the two Scottish papers on Thursday accused their directors of a massive failure of stewardship, demanding to know how their pension fund could be looted. In a letter to Mirror Group directors, the 180 journalists working on the papers claimed that the fund supervisors could be held criminally liable for the missing money.
Maxwell’s interests were wide, and his public and private holdings were intricately linked through secret companies--with the publisher, who died at 68, moving assets around the empire in ways that were apparent only to himself.
Besides the Daily News, his U.S. interests include Macmillan Publishing, the Official Airline Guide and Berlitz International.
At the Daily News on Thursday, some workers were talking about the possibility of an employee buyout of the paper--once America’s largest--that Maxwell had saved from extinction only last March. But financial analysts said the tabloid has a more pressing need than ever to persuade advertisers of its viability if it hopes to be salvaged again.
Daily News Editor James Willse told staff members at a tense meeting that the historic tabloid will continue to operate while it seeks to reorganize.
“We’re going to continue to publish a paper,” Willse said, according to people who attended the meeting.
Maxwell disappeared from his luxury yacht off the Canary Islands on Nov. 5, and his 300-pound body was found several hours later floating in the water. The cause of death is still unclear, since hasty tests by Spanish authorities seem inconclusive as to whether he died of a heart attack, drowning or other causes.
But Maxwell’s Canary Islands lawyer, who was involved in the investigation, suggested that suicide could not now be ruled out, in light of the desperate plight of his publishing empire.
When Maxwell’s death was revealed, shares of Maxwell Communication and Mirror Group plummeted and trading was stopped for two days.
In all, shares in the weaker company, Maxwell Communication, lost more than $500 million in value, slashing the worth of the family’s stake by 70%.
But the Mirror Group, always a steady money-maker even before Maxwell purchased it, improved in the stock market amid rumors that it would be better managed or sold to an outside buyer.
The immediate cause of the Maxwell empire’s downfall was a Nov. 18 move by the Swiss Banking Corp. to call in Britain’s Serious Fraud Squad to investigate the lack of collateral on its $100-million loan to one of Maxwell’s private companies.
But it soon became evident that the Maxwell companies were massively in debt through Byzantine borrowings that sometimes used the same stock shares as collateral for different loans. Other bankers who had lent to pieces of the empire were horrified.
On Monday, trading in Maxwell Communication and Mirror Group shares was suspended again, pending clarification of the family’s finances. On Tuesday, the Maxwell sons resigned to avoid any appearance of conflict of interest. Swiss Banking Corp. appointed its own receiver to take over the company to which it had lent money.
It was the revelation Wednesday that Maxwell had been dipping into pension funds to bankroll his financial activities that caused an unprecedented outcry in the British press. His own Daily Mirror, which had printed 16 pages of eulogies after his death, turned on Maxwell with an exclusive story Thursday reporting that almost $1 billion vanished from company coffers in the weeks before the tycoon died.
The Mirror said Maxwell was coming under increasing pressure to meet massive debts incurred by his private companies. Ernest Burrington, the new Mirror Group chairman, spoke of the “increasingly desperate actions of a desperate man.”
A rival tabloid, The Sun--owned by press magnate Rupert Murdoch--spread a front-page headline that asked: “Mirror Mirror on the Wall, Who Is the Biggest Crook of All?” The Sun quoted Daily Mirror pensioners as calling Maxwell the “crook of the century.”
The Sun also accused Maxwell, a Czech-born Jew who served as a decorated wartime officer in the British army, of being a turncoat Englishman, because his will called for his burial in Jerusalem. It said in an editorial that “at the very minimum,” Maxwell was “a con man, a swindler and a cheat.”
The Daily Mail’s story was headlined simply: “The Captain Who Mugged His Crew.” It asked: “Was there ever such a bloated humbug?”
Times staff writer Victor F. Zonana in New York contributed to this report.
A STRUGGLING DAILY NEWS: The New York tabloid has become the first major newspaper to file Chapter 11. D1