Case Study

On
MAXWELL

Course Code: FIN-501

Course Title: Managerial Finance

Prepared for:
Imroz Mahmud
Assistant Professor
Course Instructor: Managerial Finance

Prepared by
Achievers

Group Leader

Sumita Sarkar 19306014

Group Members

Md. Farhad Hosen 19306015

Md. Rashedul Islam 19306016
Fahad Haider 17206006

University of Asia Pacific, Dhaka

January 16, 2020
 Case Study:
MAXWELL

Summary

In 1969 Maxwell and Saul Steinberg agreed to merge their business with Leasco purchasing
Pergamon Press. An independent audit concluded that profit of Pergamon was overvalued. After
that Steinberg and his advisers were reluctant to takeover. After taking decision by panel
members it was counted that bid would proceed. In 1977 increasing Pergamon’s assets and
reported profit he turned his attention to BPC. Maxwell improved the finances of BPC. After
having control a major UK newspaper ,Mirror Group Newspaper , he bid for the New York
newspaper the Daily News. Here he got mixed results unlike BPCC and Pergamon. In March
1991 Pergamon was sold which showed a clear indication for increasing indebtedness. During
these periods he was also pledg Robert Maxwell was originally born Jan Ludvik Hoch in 1923.
Though his father was a labourer due to being expert in many languages he found it easy to come
to England. Maxwell was ambitious to succeed in the publishing history. In May 1951 he
purchased Pergamon Press and with which he was to be associated for the rest of his life.
Maxwell had been trying to grow his business empire with Pergamon as the basis. But it was a
blow when attempting to buy News of the World, he was defeated ing shares in MCC and MGN
as collateral for further loan. He also used company pension fund to borrow money. In October
1991 Maxwell got disappeared from his yacht and his body was recovered after a search in the
sea. Towards the end of November 1991 the truth about indebtedness began to emerge. The
Share price of MGN and MCC had fallen drastically. City of London institutions were blamed
for helping Maxwell. Based on scam done by Maxwell, Cadbury report emphasized on
maintaining corporate governance and stated that if City was more skeptical, damage had been
avoided.
1. Do you believe that , following the DTI reports of the early 1970s , the City should
have been more skeptical of Maxwell’s business activities?

Yes, we believe that following the DTI reports of the early 1970s the City should have
been more skeptical of Maxwell’s business activities.

In July 1971 the DTI report concluded that Maxwell showed maximum profit. Besides in
reporting to shareholders and investors he had a reckless and unjustified optimism which
enabled him not to care unpalatable fact. DTI suggested not to refer him as reliable
person to exercise proper stewardship of a publicly quoted company despite having
acknowledged abilities and energy.

DTI inspectors produced two further reports in April, 1972 and November 1973 which
were also damning of Maxwell’s business methods.

These reports could be a signal to City. But the City seemed to be deaf to DTI report.
They helped and supported Maxwell. The accountants Coopers and Lybrand Deloitee
were mainly responsible for failing to report pension fund abuses to trustees.

If City was more aware of threat , it would be possible to forecast the damage although
there is evidence that some city analysts were aware of what was going on. But there
were some courageous journalists who were prepared to confront Maxwell’s famous
reputation for litigation. Roger Cowe was one of them.

2. Contrast Robert Maxwell’s view of the role of the board of directors and the role of
the non-executive director with recent guidance on corporate governance

According to recent guidelines , there should be a clearly accepted division of

responsibilities at the head of the company which will ensure a balance of power and
authority. Where the chairman is also the chief executive it is essential that there should
be a strong and independent element on the board.

About non executive director it stated that the board should include non executive
director of sufficient caliber and number to carry significant weight in the board’s
decision. They should have independent judgement. They should be free from any
business or other relationship which can materially influence their judgement.

But for Robert Maxwell the scenery was different. Robert Maxwell was executive
chairman and the independent directors had not been effective in exercising control over
the chairman. And for non executive directors , he was not keen to appoint them at first.
But he had to accept as it was essential. He attempted to offer luminaries on board for
some years. Such as Maxwell helped people as lending their name to the company just as
distinguished scientists lent their name to his scientific journals by becoming members of
 the editorial board of the journal. Otherwise non- executive directors had no function in
Robert Maxwell’s world.

3. What do you believe are the main lessons that can be drawn from the failure of
Maxwell’s business empire?

There should be free from bias and transparent representation in financial statements.
Responsibilities and power should be divided according to maintaining balance. The head
of the company should be strong and independent and for him dominant nature should be
avoided. In case of non executive directors , they should have independent judgement.
Ethical and professional standards should be followed. Board must be effective. All
independent reports should be followed as if DTI reports of 1970s were taken into
account such a huge fraud could be avoided.

4. Who were the main losers when the Maxwell empire crushed?

Pension fund holders of Mirror Group Newspaper were the main losers as Maxwell and
his son Kevin had raided 400 million euro from the fund.

Maxwell’s indebtedness became clear when he was pledging shares in company pension
fund as collateral for further loans. In the meantime he was also pledging shares of MGN
and MCC . At the end of 1991 the share price of MGN and MCC was declining. After
death of Maxwell it was revealed that a substantial proportion of the Mirror pension fund
investments had disappeared.

So it can be said that pension fund holders and shareholders of MCC and MGN were the
main losers.

5. Is it likely that problems of the type and scale of Maxwell’s financial dealings could
be repeated in a quoted company in future?

Yes, it is likely that problems of the type and scale of Maxwell’s financial dealings could
be repeated in a quoted company.

In Bangladesh Hallmark scam occurred due to having illegal loan gotten from one
brunch of Sonali Bank. Hallmark used fake account for getting loan. Bismillah group is
also responsible for fraudulent activities in getting loan from Janata Bank. Proper
consciousness needed to maintain. As both Sonali and Janata bank were state owned bank
they can not avoid for being responsible.