Market Scene : Sticky Sweet Dispute : Poland's Wedel family fights for a share of the venerable chocolate company they lost to the Communists.

By DEAN E. MURPHY

Oct. 4, 1994 12 AM PT

TIMES STAFF WRITER

WARSAW —

The bustling E. Wedel chocolate shop in central Warsaw was built a century ago by Emil Wedel, but when the eminent Polish confectioner’s great-granddaughter stopped by recently, she was just another paying customer.

The popular landmark is one of several retail outlets of the E. Wedel chocolate company, Poland’s finest confectionery and, before World War II, a thriving family-run business of international renown with shops in Paris and London.

Today the company still bears the venerable Wedel name, but great-granddaughter Elzbieta Jasinka and other Wedel descendants are not welcome in the company boardroom, where a stern portrait of Jasinska’s grandfather, the last Wedel to run the business, marks the only family presence.

Thanks to half a century of misfortune spanning two political systems in Poland, the Wedels lost the family business to the Communists after World War II and must now do battle with capitalists to get it back.

“We want some shares in the company,” said Jasinka, 42. “The Wedels worked very hard to obtain a high quality of products, and this company is profiting from that work and reputation.”

For more than a year, about a dozen descendants of Emil Wedel, whose immigrant German father began making candy in the family home in 1851, have been fighting in and out of court to regain rights to the company name--and thereby a financial stake in the booming enterprise.

The collection of distant Wedel relatives, some of whom no longer live in Poland, claim that the Wedel name did not become government property when Communist authorities nationalized the chocolate company’s assets in 1946. As a result, the family members say, the name was not among the company assets sold by Poland’s newly democratic government in 1991 and, according to the Polish commercial code, cannot be used without the consent of the Wedel heirs.

PepsiCo Foods International Ltd. paid $25 million three years ago for 40% of the company’s shares, with the remaining shares split between the state treasury, Wedel employees and a public offering. PepsiCo has since increased its share-holding to more than 60%, during which time the chocolate company has doubled its annual net revenue to about $104 million.

“When the present E. Wedel company was first registered in the trade register of companies, there was already an E. Wedel--the prewar company--on the books,” said attorney Hanna Nowodworska-Grohman, who represents several family members. “Can you imagine what PepsiCo would do if someone went and registered a new PepsiCo company even though PepsiCo already exists?”

PepsiCo, which has been fighting the family in court, has taken a less rigid approach privately and is attempting to reach a financial settlement with the Wedel heirs.

The U.S.-based company insists that the root problem lies with the Polish government, which ignored rumblings by the family several years ago and sold the company even though Poland has no law governing claims by former property owners.

“PepsiCo is trying to find a solution to a very difficult problem which would allow all parties to benefit,” said Peter Robinson, regional vice president for PepsiCo Foods International.

The family’s quest has taken on a greater significance because of the high-profile players and the precedent that it could set for the sale of other state-owned enterprises with unresolved property-rights issues.

Five years after the collapse of communism, Polish lawmakers have still not been able to agree on how to compensate prewar property owners and their heirs.

In selling some state-owned enterprises, including E. Wedel, the government has set aside 5% of the stock as a precaution to settle potential claims. But the Polish Parliament has not passed legislation allowing the reserved money to be spent.

Among the stumbling blocks is a dispute over who is entitled to the money. Some lawmakers want to compensate only those former owners whose property was seized in violation of Communist-era laws, while others insist that anyone who lost property under communism--through means considered legal or not--should be reimbursed.

In the government’s official public offer of Wedel stock, made in 1991 after PepsiCo purchased the company’s preferred stock, small investors were warned of “risks” in the family’s interest in the name. The offer also stated that the company was secured from the risks by the state treasury--an assertion that has not yet been borne out.

“The Wedel case has pointed out that this country is still in a period of economic transition and that investors have to check very carefully all the legal issues in privatization deals,” said Ryszard Kruk, vice president of the Polish-American Enterprise Fund, which has invested $200 million in Poland.

When the company was offered to private investors in 1990, management was particularly keen on PepsiCo’s offer because it was the only one promising to keep the E. Wedel name, which the company’s surveys show is recognized in 95% of Polish households.

As for PepsiCo, whose identity is associated in Eastern Europe with soft drinks, E. Wedel brought into the corporate family a well-known and highly respected new product, a rare find in a country where few prewar brands were able to withstand 45 years of Communist mediocrity.

“Our whole feeling about Wedel is that it has a huge place in Polish heritage, and the more we do to cement that and reinforce that, the better it will be for the Wedel shareholders and the Wedel business,” Robinson said. “That is why we are so determined to keep the Wedel name. It would be a tragedy if the name was lost.”

After a spate of ideological purism, even the Communist authorities could not resist the magic of the Wedel name. After nationalization, the business was changed to the 22nd of July Confectionery Works, a reference to an important date in the founding of communism in Poland. But when exports to the West grew in significance in the 1960s, the name was lengthened to 22nd of July Confectionery Works, Formerly E. Wedel, and with time, most everything but E. Wedel was dropped from everyday use.

“We all wanted a company that would carry the Wedel name,” said Jozef Rutkowski, chairman of the E. Wedel board since 1990.

The Wedel descendants have won two important court victories, both of which ordered PepsiCo to change the name, but Pepsico continued to put E. Wedel on the label while it sought an appeal through the Polish Justice Ministry.

The ministry decided last month to take the unusual step of requesting a special review of the case by the Polish Supreme Court, the clearest indication yet of how seriously the government views the outcome.

Jasinska, the great-granddaughter, said PepsiCo’s continued use of the E. Wedel name smacks of arrogance and has hurt PepsiCo’s reputation in Poland.

“One would expect a Western company to know better, that a name, especially a family name, can’t just be taken away,” Jasinska said. “The inheritors are firm in following this through to the end.”

Rutkowski, the Wedel board chairman, said PepsiCo has not been harmed by the dispute, nor has its chocolate company, which continues to make more and more money. With 3,000 employees, it remains the largest food products business in Poland.

“I am not critical of the Wedel family or what they are trying to do,” he said. “The issue of nationalization should have been resolved a long time ago.”

Sweet Tooths

Top consumers of chocolate confectioneries, by country:

(Average kilograms per person in 1991)

Switzerland: 9.9

Norway: 7.9

Austria: 7.8

Netherlands: 7.7

Britain: 7.4

Belgium / Luxembourg: 7.2

Germany: 6.9

Ireland: 6.7

Denmark: 6.6