THE ACQUISITION OF MGN

The 1971 DTI Report
The Maxwell Foundation
The acquisition of BPC
The acquisition of MGN

1984 - 1988: THE RESTORATION OF MGN TO PROFITABILITY

(1) RM's control over the management

(a) MGN
(b) SDR

(2) RM's control over the finances of MGN

(3) RM's use of MGN in connection with his other interests: the intercompany debt

(4) RM's control over the pension funds

(a) MCC shares
(b) Maxwell House
(c) Beecham shares
(d) Reuters A shares
(e) Use of cash and CLD's view on this during the 1988 audit.

(5) Steps taken to return MGN to profitability

1984 - 1988: THE EXPANSION AND OWNERSHIP OF RM'S OTHER COMPANIES

The growth of RM's companies
The first reorganisation of ownership (1986): the private side
MCC's acquisition of the Philip Hill Investment Trust PLC
The use of The Maxwell Charitable Trust
Expansion of MCC and the second reorganisation of ownership (1987-1988)

1988 - 1990: THE NEED FOR RM TO MAKE DISPOSALS

Consideration of flotation in February 1988
The acquisition by MCC of Macmillan and OAG for over $3 billion
Further consideration of the flotation of MGN in October 1988: the role of CLD
The sale of BNPC to MGN 58 Further consideration of flotation in the autumn of 1989
The management of MGN after its return to profitability
Further support from MGN to the private companies
Secret purchases of MCC shares in 1989 through TIB and the Japanese placement
Bank lending and the private side debt
The third reorganisation of ownership (1990)

1988-90: RM'S USE OF THE PENSION FUNDS

The transfer of the effective control over the pension funds to BIM
LBI
The use of the Common Investment Fund (CIF)

(a) Investment in related companies
(b) Loans of cash to the private side
(c) FTIT
(d) Acquisitions from related parties
(e) Dealings for the benefit of MCC and the private side
(f) Use of shares as collateral for loans for the benefit of the private side

The position of the CIF at 5 April 1990

1990: CIRCUMSTANCES LEADING TO THE DECISION TO FLOAT MGN

(1) Borrowings by the private side from the CIF in May and June 1990
(2) The difficulties faced by MCC

(a) The continuation of MCC's asset disposal programme
(b) The purchase by RM’s interests of MCC shares
(c) The failure to disclose the extent of BIM's holding
(d) Explanation for the purchases of MCC shares 107

(3) The problems of the private side

(a) The use of the CIF and pension schemes for cash and collateral
(b) Unauthorised overdrafts at 31 December 1990
(c) The Worship Street premises and Robert Fraser
(d) The Bank of England's involvement in RM's attempt to acquire Robert Fraser and in answering an enquiry from the Bank of Israel

(4) The events of the autumn of 1990

(a) The transfer to MGN of the interests in QPI and Donohue
(b) The sale of the stake in De La Rue and the repayment by MCC of bank debt of $415m
(c) MGN's new borrowing - £360m facility – and the use of MGN’s cash flow
(d) Subscription to the facility and the two payments of £30m
(e) Draft accounts of MGN at 31 December 1990: MCC commercial paper and other matters
(f) Consideration of a separate flotation for SDR

(5) The decision to float MGN in November 1990

THE ROLES AND DUTIES OF THE DIRECTORS AND ADVISERS ON THE FLOTATION

The duties of the directors and due diligence
The duties of the advisers
The overseas offer - the role of SBIL
Taking special care because of RM
The duties of the Stock Exchange

Four duties of the Stock Exchange
Suitability for listing
The procedures of the Stock Exchange

ORGANISATION AND TIMETABLE OF THE FLOTATION

Organisation
Timetable
The main issues that arose on the flotation

JANUARY TO APRIL 1991: EVENTS CONCERNING RM'S OTHER INTERESTS

Summary of the position of RM's interests at the end of December 1990
(1) The dealings by RM in MCC shares and the share price
(2) The private side debt, its asset disposals and its need for collateral
(3) The audit of the CIF

(a) Related party connections in the investments
(b) Loans of cash
(c) Related party dealings
(d) Use of shares by the private side as collateral

(4) Events at FTIT

THE FLOTATION: CONTROL OVER THE MANAGEMENT OF THE COMPANY

Sources of information of the way RM operated
The information considered
The steps taken in respect of the corporate governance of MGN

(a) The role of RM as Executive Chairman
(b) The executive directors
(c) The appointment of non-executive directors
(d) The Articles
(e) Creation of operating companies
(f) The audit committee
(g) Company Secretary

THE FLOTATION: CONTROL OVER THE FINANCES OF THE COMPANY

Sources of information about RM's control over finances
The information considered
Steps taken in relation to MGN's control over its own finances

(a) A treasury for MGN
(b) The sole signatory authority
(c) RM's continued ability to initiate treasury transactions without proper documentation
(d) The restricted role of the finance director
(e) The role of KM
(f) The reporting system

CONTROL OVER THE RELATIONSHIP WITH THE MAJORITY SHAREHOLDER AT FLOTATION

(1) Control over dealings with related parties

(a) Group services
(b) Trading relations
(c) Competition
The "ring fence"

(2) Proper exercise of majority control

(a) The fourth reorganisation of ownership
(b) The undertakings given
(c) Arrangements to maintain stability in the shareholding

THE ADEQUACY OF THE ARRANGEMENTS FOR THE PENSION SCHEMES AT FLOTATION

The scope of work required on the flotation
The way in which the funds had been operated

(a) Investment in related companies
(b) Loans of cash to the private side
(c) Related party dealings
(d) Use of shares by the private side as collateral
(e) The way the CIF was managed and its domination by RM

The accounts of the pension schemes and the CIF which were subject to audit
The information considered by the advisers on the flotation

(a) Investment in related companies
(b) Loans of cash to the private side
(c) Related party dealings
(d) The use of shares by the private side as collateral
(e) The way BIM was managed and its domination by RM

The steps taken in relation to the pension schemes during the flotation

(a) Control over related party dealings
(b) The special financial review
(c) The disclosure in the prospectus
(d) Action in respect of the concerns of the Association of Mirror Pensioners

The transfer of MCWPS

THE BUSINESSES AND OTHER ASSETS INCLUDED IN THE FLOTATION

The newspaper businesses
Property

(a) SDR properties
(b) The Mirror Building and Orbit House
(c) Worship Street

The interests in Donohue and QPI
Valuation of the floated business and the titles

OTHER FINANCIAL INFORMATION RELEVANT TO THE PROSPECTUS

The advice given on flotation about the debt owed by the private side
The scheme to enable a dividend to be paid
The settlement of the hard core intercompany debt
Items left out of the settlement

(a) The trading accounts
(b) The amount due on the maturity of the MCC commercial paper
(c) The cash payments on 12 and 15 April 1991
(d) The Can$35m loans

The three year record
The statement of indebtedness
MGN's borrowing facilities in 1991
The business plan and working capital report

COMFORT ON THE PRIVATE SIDE FINANCES AT FLOTATION

The decision to seek comfort on the finances of RM's private companies
The work carried out by CLD
The completeness of the information provided to CLD
Other factors

(a) The cash flow of the private side
(b) The ability to dispose of the MCC shares

Overall effect
Consideration of the finances by the banks
The indemnities given
The interest rate cap and collar contracts

THE MARKETING OF THE SHARES IN APRIL AND MAY 1991

The marketing strategy 243
The marketing to the public
The provision of information on RM's background
The marketing launch

THE SUCCESS OF THE OFFER

The closure of the lists
Those who bought the shares

THOSE WHO BENEFITED FROM THE PROCEEDS OF THE FLOTATION

The destination of the proceeds of the flotation
The benefits of the flotation to RM's interests
The reasons for the flotation

MAY TO JULY 1991

(1) Control over the management of the company

(a) Approval of the bank mandate
(b) Delegation of the board's powers
(c) Other matters

(2) Control over the finances of the company in May and June 1991

(a) Information available to the MGN finance department
(b) Transactions in May 1991
(c) RM's decision in relation to the roles of Mr Guest and Mr Stoney on 20 May 1991
(d) RM's appointment of a treasurer on 5 June 1991
(e) Dealing with the banks
(f) The position of the private side finances: the use of MGN shares as collateral
(g) Transactions with the private side in June 1991
(h) The foreign exchange dealings
(i) Position on the intercompany account at 28 June 1991

(3) The market in MGN shares and the secret purchases by RM

(a) The share price
(b) Request by RM that shares be bought after the commencement of dealing
(c) The dealings by the Salomon Brothers Group of Companies on 17 and 21 May 1991
(d) Secret purchases by RM on 22 May 1991
(e) Secret purchases by RM on 21 June 1991

(4) The interim results

(a) Decision to bring forward announcement of the interim results
(b) Further transactions to benefit the private side between 1 and 17 July 1991
(c) Meeting between Mr Stoney and CLD
(d) The consideration by CLD of the interim results
(e) Failure of the audit committee to meet
(f) The board meeting on 23 July 1991

AUGUST TO 5 NOVEMBER 1991

The position of MCC and the private side as at August 1991

(a) MCC
(b) The financial position of the private side

The need to pledge the whole of the MGN shareholding
Payments for the benefit of the private side August to 7 October 1991

(a) Payments to US investment banks
(b) Payments to and receipts from BIM
(c) Transactions with the private side companies

Action taken by the executive directors of MGN
A new lease for the Mirror Building and other events

(a) The need to renegotiate the lease of the Mirror Building
(b) The board meeting on 12 September 1991
(c) Samuel Montagu's involvement in the Mirror Building lease

The intervention of Samuel Montagu
The repayment of the BIM "deposits" and "the purchase of gilts"
The involvement of the non-executive directors
The meetings with CLD
Events between 10 October and 29 October 1991

The appointment of Mr Stoney as Deputy Managing Director (Finance)
The loan of £50m from Bankers Trust
The October 1991 settlement of the intercompany accounts

The meetings on 29 October 1991
1 to 5 November 1991

CONCLUSIONS

Section 1: What was appreciated about RM and the pension funds by the beginning of 1991?
(1) The characteristics of the way RM operated
(2) The abuses of the pension funds

Section 2: Was MGN suitable for listing?
(1) Control over the management of the company

(a) Consideration of how MGN had been run
(b) The new system of corporate governance
(c) The description in the prospectus
(d) The role of the Stock Exchange as the Listing Authority at the time of the flotation

(2) Control over the finances of the company

(a) Consideration of the existing financial controls at MGN
(b) The new system of financial controls

(3) Control over related party dealings
(4) The arrangements for the pension schemes
(5) Financial and other information
(6) The finances of the private side
The overall responsibility of Samuel Montagu as the sponsor
A contemporaneous assessment of MGN by the credit rating agencies

Section 3: What had changed at MGN after flotation?
(1) Control over the management of the company

(a) The position of the main board and the role of the company secretary
(b) The management of MGN Limited
(c) The audit Committee

(2) Control over the finances of the company
(3) Related party transactions
(4) Other financial information: the Cap and Collar contracts
(5) Pensions 342

Section 4: How did the market in MCC and MGN shares operate?

RECOMMENDATIONS AND LESSONS FROM THE EVENTS

Introduction
(1) Pensions

(a) The risk of misuse and public expectations
(b) The trustees
(c) The professions
(d) The Disclosure Regulations
(e) The regulator – Opra
(f) Custodianship

(2) The public offering of securities

(a) The expectations gap on the role of the UK listing authority
(b) A definition of the role and duties of advisors on a flotation
(c) Box ticking
(d) Disclosure
(e) Listing requirements
(f) Reporting accountants

(3) Regulation within the UK

(a) Conflicts of interest
(b) The expectations gap on the scope of regulation
(c) Approval of a person as fit and proper
(d) The communication of information
(e) Staffing of regulatory bodies

(4) The securities markets

(a) Co-operation under existing arrangements
(b) International lead supervisors and colleges of regulators
(c) Possible longer term solutions
(d) Jurisdictions where there is secrecy
(e) Public expectation of regulation

(5) The audit and regulation of company “empires”
(6) Auditors, independence and the detection of fraud

(a) Non audit services: independence and conflicts of interest
(b) Rotation of auditors
(c) The expectations gap and fraud

(7) Corporate governance of listed companies: chairmen, directors and non-executive directors

(a) The preferred approach
(b) Directors understanding of their duties
(c) Executive Chairman
(d) The role of non-executive directors

(8) Technical matters

(a) Definition of realisation
(b) Options
(c) Disclosure of a director’s loans secured by shares
(d) Disclosure for the purposes of a criminal trial

(9) Review of recommendations