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Can Robert Maxwell Afford His New `Pet'?


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CAN ROBERT MAXWELL AFFORD HIS NEW `PET'?

Robert Maxwell couldn't have scripted it better himself. Late on Mar. 11, the flamboyant British media baron faced a throng of reporters in the lobby of his Manhattan headquarters. He told them that after four days of round-the-clock talks, he was close to a deal with the striking unions of the New York Daily News. Asked how he would revive the ailing tabloid, Maxwell replied: "If you're selling a rabbit skin, never discuss it until you've caught the rabbit." The remark prompted roars, and as he strode back to the elevators to resume the talks, News workers began chanting: "God save the Queen."

Maxwell hasn't caught his rabbit yet. But after winning a pact with the News's 10 unions on Mar. 12, he's within a hop or two. If he can clinch his deal with News owner Tribune Co. by Mar. 15, he will become the second foreign publisher to take on a fabled New York City newspaper. In 1976, Rupert Murdoch bought the New York Post, selling out in 1988. Maxwell also faces the tough task of making money in a dying tabloid market. And the 67-year-old entrepreneur may not be in the best financial shape to pull it off: A BUSINESS WEEK investigation indicates that Maxwell's finances are parlous.

CASH SCRAMBLE. Like Murdoch, Maxwell has borrowed his way to a global empire. The News acquisition actually looks puny next to Maxwell's $2.6 billion purchase of book publisher Macmillan Inc. in 1988. Tribune will pay him about $60 million to assume the liability of employment contracts for the paper's workers. Analysts say those obligations could total $100 million. In 1990, the News lost $114 million, and by now, the strike has driven almost all advertisers away.

What's more, Maxwell may already be on thin ice. His network of public and private companies is at least $4.6 billion in debt (table). Of that amount, $3 billion is borne by publicly held Maxwell Communication Corp., whose holdings include Macmillan. But documents obtained by BUSINESS WEEK show that at least $1.5 billion more is owed by Maxwell's private entities, which have borrowed against much of their assets. Maxwell did not respond to a written request for comment.

Maxwell dug himself into this hole mostly with his brash acquisition of Macmillan. Ever since, Maxwell Communication has been scrambling to raise cash by selling assets. Securities analysts say the company's assets are top-notch, but Maxwell paid more than 30 times earnings for some of them. That has saddled the company with a hefty debt-to-equity ratio of 1.3 to 1.

Maxwell Communication also has a spotty profit record, with per-share earnings down 27% from their 1986 peak. Moody's Investors Services Ltd. figures cash flow from operations won't be enough to service the debt and has rated the company's debt at junk-bond levels. Yet several of Maxwell's private investment vehicles borrow extensively and use their shares in Maxwell Communication as security. Bankers call this arrangement "pig on pork."

SECRET TRUST. Documents reveal that at least a third of Maxwell's stake in Maxwell Communication has been pledged as collateral for loans. It's impossible to determine the exact percentage, since most of Maxwell's shares are held in a secret Liechtenstein trust. But borrowing on shares is risky, particularly when the stock price has fallen 30% since 1989. Such a drop obliges Maxwell to put up more shares as collateral. Still, his bankers claim they aren't worried. Says one: "We feel we know enough about the situation to be comfortable."

There are signs that Maxwell is now trying to raise some cash for his private companies as well. Pergamon AGB, a TV-ratings group, may be for sale and could fetch $200 million. Maxwell is also selling off his TV interests. His most significant move is a planned public offering of profitable Mirror Group Newspapers Ltd. One adviser predicts he will also retire from Maxwell Communication. Former aides say Maxwell is having trouble keeping up his frenetic pace. And his departure may also boost the company's shares, since investors are wary of the erratic tycoon. But he would probably remain chairman of Mirror Group.

Maxwell also plans to take personal command of the News: He says he will become publisher of the paper he calls his "pet". With a menagerie as debt-burdened as Maxwell's, employees of the News may still have to wonder if their new British keeper has the wherewithal for their care and feeding.Mark Maremont in London, with Mark Landler in New York


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