MONEY The Maxwell in-out drama
NICHOLAS DAVENPORT
It was premature of me in my last review of the Pergamon Press roundabout to say that Mr Robert Maxwell was down and out. Clearly he will never be down and out until the final take-over comes from above. It certainly seemed that the basis of the revised bid by Leasco was that Mr Maxwell should relinquish his executive control and hand it over to the Leasco managing director, Mr Stevens. Rothschilds declare that Mr Max- well signed a piece of paper to that effect. Lord Shawcross, chairman of the City Take- over Panel, rushed back from his holiday to tell Mr Maxwell that he must honour the bargain. But Mr Maxwell denied that he had committed himself to such a ridiculous arrangement. How could he have agreed to give up executive control of the company when its performance during the next six months would determine the price they would pay for his shares? So Leasco promptly withdrew their revised bid and announced that at the forthcoming general meeting of the shareholders on 9 October they would propose a resolution removing Mr Maxwell and the entire Pergamon board. As Leasco have bought 38 per cent of the equity they could be successful unless Mr Maxwell can win over the support of the 'institutional' shareholders—the so-called 'third force'—which hold some fifteen per cent.
The two circulars sent to the shareholders over the weekend mark Mr Maxwell's determined attempt to secure the backing of these independent shareholders. The one is from William Brandt, the new financial advisers of Pergamon; the other is from the board of Pergamon. The Pergamon circular gives the heads of agreement reached be- tween Mr Maxwell and Leasco on 27 and 28 August under which Mr Maxwell would resign as managing director. But Mr Max- well would remain as chairman and ultimate control would still lie in their view with the board of directors, although the chief execu- tive would be the man nominated by Leasco.
This is where the vital dispute began and why the second bid was withdrawn. The Maxwell and the American ideas of final executive control were poles apart. The Americans assumed that Mr Maxwell would be expressly subordinated to Mr Stevens. Brandts sharply criticise Leasco for refusing to discuss alternatives and sticking to 'sole management control'. They believe that an agreement could have been reached without damaging Leasco's interests. In my view there was never any chance of getting Mr Maxwell and Mr Stevens of Leasco to work harmoniously together unless police were called in to erect barbed-wire barricades in the corridors between their rooms.
Into this fearful dispute, which is no less bitter than the quarrel between Catholics and Protestants in Ulster, an intervention was made on Saturday from an unexpected quarter—the British Printing Corporation, the company which owns jointly with Per- "anon the 'use (International Learning ✓ systems Corporation). Mr Charles Hardie, the chairman of British Printing, issued a
lengthy statement to his shareholders about their relations with ILSC, the company which markets the encylopaedias. In it he claims that it has a brilliant future. The world mar- ket for encyclopaedias is worth, he says, £400 million a year—I suppose he means turnover—and the lisc share in it (at present only 4 per cent) could grow sub- stantially. The inference is that he regards Mr Maxwell, the managing director of ILSC, as the super-salesman who could bring home the 'lolly'.
British Printing and Pergamon came to- gether when Pergamon acquired Caxton Holdings, whose subsidiary was marketing the New Caxton Encyclopaedia for British Printing, a rival of Pergamon's Chambers's Encyclopaedia. As there was a disparity of assets between the two groups when they set up us(' with an equity of £2 million jointly owned, a complicated 'framework agree- ment' was entered into under which each gave a warranty of tt.sc profits for the first year of operation—Pergamon's warranty be- ing £500,000 and BPC £98,000. As this warranty costs BPC £6,000 heaven knows what it cost Pergamon. The agreement also contained mutual options whereby either BPC or Pergamon could give notice offering to sell its share to the other at a specified price. The recipient of the notice then has the option either to accept the offer or to sell its own share to the offering party at the same price. This was known as 'the Savoy Clause. It would be better known as the Gilbert and Sullivan Clause, for a more Gilbertian situation could not have been invented. A commentator has said 'Where there is Maxwell there is news' but I would say 'Where there is Maxwell there is complication enough to drive you mad or make you sell out at any price'.
The important part of Mr Hardie's state- ment is that he believes the profit statement of ttsc for the eighteen months to December 1968 of £40,000 to be a true profit. It was arrived at after crediting a profit on devalua. tion of £346,000 and carrying forward £300,000 of development expenditure. I would have thought that the true profit in these circumstances might be conservatisek written down as nil. But Mr Hardie says that in the publishing business it is normal to spread the development expenditures in newly opened areas over a period of years. During the eighteen months to December 1968 the turnover of ILSC reached £8.5 million. He thinks that this is most pro- mising. But he is clearly biased as BK: has loaned ILSC a lot of money. Bec has been printing and publishing for some years 'part-works'-encyclopaedia material sold in weekly parts—and most of this material is suitable for sale in encyclopaedia bound-volume form. No doubt this is a desir- able and profitable ingredient of the sec and Pergamon business. They know too well how to exploit our thirst for knowledge.
The last—and repudiated—agreement be- tween Mr Maxwell and Leasco gave Leasco the right to require Mr Maxwell to buy for £750,000 the Pergamon half of ILSC. Surely Mr Hardie, as he believes so strongly in Mr Maxwell's super-salesmanship, will help him to re-activate that deal. We are all so tired of this unseemly dispute and of seeing the faces of Mr Maxwell and Mr Steinberg darkening the front pages. We investors would now like to have some peace to con- sider whether equity shares—other than the suspended Pergamon— are not worth buy- ing in this pre-relaxing budget phase.
ffolkes's industrial alphabet
Qis for Queen
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