The Turmoil That Maxwell's Kids Are Inheriting

Robert Maxwell gave editors of his newspapers the kind of story tabloid news hounds dream about: "Flamboyant Tycoon Dies in Mystery at Sea." But this time, the victim was Maxwell himself. Sometime in the early hours of Nov. 5, the 68-year-old British media baron vanished from his 180-foot motor yacht. His nude body was found floating later that day in the Atlantic Ocean near the Canary Islands. After a day of wild speculation about the circumstances of the death, an autopsy concluded that Maxwell died of natural causes, perhaps as a result of a heart attack, before falling overboard.

No less mysterious is the fate of the global empire Maxwell assembled in the five decades since he emigrated to Britain from his native Czechoslovakia. Can this tangled, debt-ridden empire survive its larger-than-life boss? It's no idle question: Like rival Rupert Murdoch, Maxwell borrowed huge sums to snap up everything from eminent book publisher Macmillan Inc. to New York's feisty Daily News tabloid.

By early this year, Maxwell was struggling under a crushing debt: $3.9 billion for his complex web of public and private companies. Making matters worse, the recession had sapped profits and eroded the value of his assets. So to stay ahead of bankers, Maxwell had been frantically selling off assets for several months.

Now, Maxwell's sons must sort out the mess. Kevin, 32, has been named chairman of Maxwell Communication Corp. (MCC) and publisher of the Daily News. Colleagues say Kevin is a savvy financial manager who served as Maxwell's principal contact with bankers. He'll need those skills: Flagship MCC, which controls Macmillan and other Maxwell properties, is saddled with $2.3 billion in debt. His older brother Ian, 35, will run Mirror Group Newspapers Ltd., the profitable and relatively debt-free company that controls Britain's Daily Mirror.

But no Maxwell property is really secure. That's because Maxwell has put up shares of MCC and Mirror Group as collateral for much of the $1.3 billion in loans taken out by his private companies. As a result, MCC's earnings and share price are critical to the creditworthiness of other properties. The trouble is, MCC isn't earning enough from core operations to pay its own interest, taxes, and dividends.

FEW OPTIONS. Other companies in such straits might cut their dividend. But analysts say Maxwell couldn't afford that: His family controls 68% of MCC's shares, and one observer believes Maxwell needed the dividend to pay interest on his private debt. What's more, say analysts, Maxwell has had to maintain an unusually generous dividend to prop up the price of MCC shares. If the price drops too much, banks can demand more collateral, further increasing pressure on the empire. MCC shares, which were already sinking, plunged 13%, to $2.13, on Nov. 5 -- before trading was halted.

So Maxwell has left his sons with few options. Family bankers and advisers say the brothers will continue to sell assets. They may have some breathing room, since a $750 million debt payment isn't due until October, 1992, with a further $1.25 billion due two years later. But MCC execs say Maxwell's much-ballyhooed plan to raise cash by spinning off U. S. assets into a new public company has been shelved. One admits the plan "was made up on the fly."

Instead, Kevin Maxwell will probably speed plans to sell chunks of the U. S. business outright. Chairman William Reilly, of K-III Holdings, says he talked to Maxwell several weeks ago about buying MCC's 56% stake in Berlitz, a language and travel book publisher. Reilly says they didn't agree on price, but he believes many Maxwell properties are on the block. The future of the Daily News is unclear: It actually broke even in three recent weeks and has made circulation gains. But analysts say it could still lose $40 million this year.

Even with the sales, it's not clear that MCC will be able to pay off all its debt. With Maxwell out of the picture, bankers say his debt may have to be restructured. Kevin Maxwell says he hasn't discussed any refinancing with the banks. If a restructuring is done properly, Maxwell's empire could emerge as a smaller but sounder business. But it seems unlikely to remain one of the world's biggest media empires. That dream died even before Robert Maxwell.

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