Strongest link in an unbroken chain

Wojciech Kruk looks nothing like a capitalistic shark. An avuncular character, he loves nothing more than talking about his family’s merchant roots and his father’s fight to keep his jewellery business alive during the grey years of communism.

However, this year he masterminded a reverse takeover – one of very few in Poland’s history – and is now creating the country’s first luxury brand, combining jewellery, fashion and delicatessen foods.

Mr Kruk’s fight to retain control of his family company in the face of a hostile takeover shows that in Poland the entrepreneurial drive that created a flourishing economy from the wasteland of communism is present even in one of thecountry’s few traditional family companies.

Earlier this year Mr Kruk got the surprising news that his 168-year-old jewellery chain, W. Kruk, which has 53 shops around Poland and 30 Deni Clair women’s clothing shops, was the object of one of Poland’s first hostile takeovers.

Because his family owned only 28 per cent of the company’s shares, Mr Kruk says he had to count on the chance of something like that happening. But as he sits sipping a glass of wine at a smart restaurant in Warsaw, he adds: “I thought it inconceivable that someone would try something like that against the will of the family. The company was increasing its profits by 30 per cent a year. It was paying good dividends and I thought I had peace and quiet for the next three generations.”

So Mr Kruk was dumbfounded by the unsolicited bid submitted in May by Rafal Bauer, the chief executive of Vistula & Wolczanka, a clothier best known in Poland for recruiting Pierce Brosnan, the actor, to head an advertising campaign for its men’s suits. Mr Bauer wanted to combine Vistula with Kruk to create an umbrella luxury brand similar to France’s LVMH.

Mr Bauer had a reputation as a cold-eyed visionary, ruthless with the bottom line. “The numbers should decide, not emotions,” he said at the time of the bid. Vistula’s revenues in 2007 were 411m zlotys ($136m, €108m), and profits were 60.6m zlotys. W. Kruk revenues (for its jewellery stores and the Deni Clair chain) were 167m zlotys, while its profits were 18.7m zlotys.

Mr Kruk was intrigued by the idea of a link-up, but told the bidders to come back in a year after he had had more time to think about the offer. The response was that if he did not want to take part, then the takeover would happen anyway, without his consent.

“If they had come and talked to me, maybe I would have done it,” says Mr Kruk. “By doing it without me they were risking the brand of the company, risking what they were trying to buy. I had enough money to open 40 new shops and I would have taken all of the staff with me.”

For Mr Kruk, the key problem with the hostile bid was that it was a pure business calculation. For him, the family company and the jewellery business carried deep emotional ties.

Mr Kruk could not defend himself from the takeover; the investment funds that held a majority stake in W. Kruk were ready to sell and the bidders were acting within the law. So he sold his share of the company to Vistula, which ended up with 66 per cent of Kruk, taking control of the jewellery chain.

What Mr Kruk did next came as a surprise. Using the money he had earned from selling his company, he bought 5 per cent of Vistula. Another 5.9 per cent was acquired by an ally, Jerzy Mazgaj, the owner of a chain of delicatessens. As Vistula took over W. Kruk, Mr Kruk, together with Mr Mazgaj and with the support of some shareholding investment funds, moved to take control of Vistula.

“I don’t think they expected that,” he says with a grin. “I had to make a decision to defend the family wealth, and I was not ready to retire.”

Within several weeks of the original takeover, Mr Bauer and his allies had been removed from Vistula’s board to be replaced by a team allied with Mr Kruk and Mr Mazgaj.

While management has changed, the vision of creating a luxury brand remains. “Their vision was very good but I had a problem with their method. It was a clash of two ways of doing business,” says Mr Kruk, who spent many years serving as a senator in Warsaw.

For Mr Kruk that way of doing business is all about tradition and family. Yet such attitudes are very rare in Poland, where the bloody conflicts of the 20th century wiped out the country’s merchant class. First the Nazis slaughtered Poland’s traditional shopkeepers and traders, the Jews, and then the communists finished the job by expropriating the factories and shops of Poles who tried to rebuild their businesses after the second world war.

Only a handful of merchants survived. One of them was Henryk Kruk, Mr Kruk’s father. After his jewellery company was nationalised, he ended up making jewellery in his house in Poznan, in western Poland, with just one worker. But doing anything that smacked of capitalism was very dangerous. The elder Kruk spent 10 months in prison because 17kg of sugar had been found in his house.

“Those were the times if you were slightly above average you would get into trouble,” says Mr Kruk.

After the Stalinist terror in 1956, Henryk Kruk continued making silver jewellery in his basement. Most of the production was sold wholesale through state-owned jewellery shops, and the Kruk brand disappeared. Still, they were making a relatively good living.

“We were making unimaginable money compared to average people,” says Mr Kruk, who had his own car as a university student, an unheard-of luxury.

After Wojciech Kruk joined the family business, he began exporting part of his production because of a loophole in communist laws. This earned him hundreds of thousands of dollars. He also reopened a small shop on a side street in Poznan in 1978, one of the country’s first private jewellery shops.

“We were besieged,” he says. “There were such huge lines that we had to hang out a sign that we would only sell two rings per person.”

When communist rule ended, Mr Kruk began to reconstruct the family business. “I had to build the company up from zero, to turn a workshop into a chain of shops at a time when no one in the country had any experience in jewellery.” He was guided by the tradition of his merchant background, inculcated by his late father, a man he calls “my guru”.

It was the emotional connection with a company built by his ancestors that prompted Mr Kruk to fight back after the hostile takeover bid. Vistula is now under the control of chief executive Michal Wojcik, whose main task is to repay the 300m zloty loan taken out by Mr Bauer to buy W. Kruk – and to turn his predecessor’s vision into a reality.

“My father said, ‘It’s difficult to be a rich jeweller in a poor country’,” says Mr Kruk, but now the middle class is growing, there may be room for a Polish luxury brand.

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