Kruger Inc.

3285 Bedford Ch.
Montreal, Quebec H3S 1G5
Canada
(514) 737-1131
Fax: (514) 737-1001

Private Company
Incorporated: 1921 as Kruger Paper Company Ltd.
Employees: 6,000
Sales: $800 million (1995 est.)

SICs: 2621 Paper Mills; 2631 Paperboard Mills; 2653 Corrugated& Solid Fiber Boxes; 6710 Holding Offices

A leading manufacturer of recycled newsprint and other paper products, Kruger Inc. is the largest, privately owned forest products company in Canada. During the mid-1990s, Kruger produced 1.8 million metric tons of paper products per year. The company’s two largest paper mills were located in Bromptonville and Trois-Rivieres, Quebec. Aside from these two major mills, the company operated several other mills in Canada and a recycling center in Albany, New York for collecting wastepaper.

Early 20th Century Origins

The first stirrings of what eventually became the largest, privately owned forest products company in Canada began in New York at the turn of the 20th century. It was there and then that the patriarch of the Kruger family, Joseph Kruger, worked as a paper merchant, plying his trade in a business that would make the Kruger name synonymous with the production of paper products for the next century. Along with the inseparable link connecting the Kruger family name with paper production came enormous wealth and widespread prominence for Joseph Kruger’s descendants, but the family did not begin its rise until Joseph Kruger decided to settle elsewhere. New York proved to be only a way station along the family’s path to greatness. It was in Montreal that the Krugers rose to distinction in the paper products industry, establishing a business legacy there that was renowned for its privacy and astute management, and one that began in 1904 when Joseph Kruger moved from New York and settled in Montreal.

In 1921, Joseph Kruger formally established the predecessor to Kruger Inc., a wholesale fine papers business known as Kruger Paper Company Ltd. Though Joseph Kruger founded the family business, the credit for developing the business into one of Canada’s largest companies fell to his two sons, Gene and Bernard. The duties of stewarding the fortunes of the family business were passed to these two second generation representatives of the Kruger family at an early age, for six years after he officially established Kruger Paper Joseph Kruger died, never knowing that the small business he had created would develop into one of Canada’s preeminent enterprises.

At the time of Joseph Kruger’s death, Kruger Paper employed a total of five employees. Four workers were assigned to the company’s warehouse to distribute the fine paper sold to wholesale customers, and the remaining member of the company’s payroll wore two hats, serving as Kruger Paper’s secretary and bookkeeper. At the age of 25, Gene Kruger took control of the enterprise. He had spent the previous five years working at Kruger Paper with his father; his brother Bernard, 15 years old at the time of his father’s death, remained in school. A year later, in 1928, Bernard joined his brother at Kruger Paper, marking the beginning of a fraternal partnership that would span a half century.

The transformation of Kruger Paper from the small, wholesale fine papers business left by Joseph Kruger into one of the largest newsprint producers in North America began quickly under the guidance of the two Kruger brothers., albeit in a direction far removed from newsprint production. In 1929, the Krugers diversified into the aluminum business, founding Aluminum Rolling Mills and Dominion Foils Ltd. Both were based in Quebec, with Dominion Foils registering the greatest success of the two. A manufacturer of foil for the packaging industry, Dominion Foils was one of the first companies to master the production process involved in combining foil and soft paper for holding cigarettes in their packaging, spurring the two Kruger brothers forward in their involvement in the aluminum business. In the decade leading up to World War II and after the war, the Krugers continued to invest in aluminum production properties by acquiring or building plants throughout Canada and in Holland.

Within a few short years of their father’s death, Gene and Bernard Kruger had distanced themselves from the business that Joseph Kruger had created. Joseph Kruger had established a business that never pretended to be more than a small-scale, entrepreneurial venture capable of supporting a family. The Kruger brothers, on the other hand, quickly embarked on a course that, in retrospect, pointed to the development of a business empire. Although the two Kruger brothers kept both their personal and business dealings close to the chest, preferring to remain out of the public spotlight, later publicity about the power dynamics between the two brothers cast the elder bother, Gene, as the orchestrator of all that followed the death of Joseph Kruger.

For nearly all of their years spent together directing their family-owned business, Gene and Bernard maintained a low social profile and avoided political involvement. During the decades that spanned the development of their family fortune, however, a few employees and friends shed light on what was occurring within the Kruger inner circle. To a reporter from MacLean’s, a former employee noted that Gene Kruger was always on the phone “yelling and screaming.” The same employee described Bernard as the epitome of affability, remarking that, in contrast, Bernard was a gentle and gracious person who mixed easily with his employees. The divergent personalities of the brothers defined their dealings with each other: Gene was in charge and Bernard generally responded dutifully to his brother’s bidding. Bernard admitted as much, confiding to a Maclean’s reporter that“if there was a disagreement, we would do things Gene’s way.” Consequently, Gene Kruger received much of the credit for the success recorded by Kruger Paper and later by Kruger Inc., earning a reputation within the Canadian forest products industry that perhaps was justly deserved. One industry consultant later remarked, “Gene Kruger was always one of the brightest and most innovative men in the business.” Despite the uneven power relationship between the two brothers and the accolades heaped upon Gene Kruger, there was no power struggle between the two brothers. In one of his few comments to the press, Bernard Kruger described his feelings for his brother to a Canadian Business reporter, explaining, “It was the greatest relationship in the world; we trusted each other implicitly.”

Post-World War II Expansion

The Kruger brothers worked well together, and the growing magnitude of their business interests reflected as much. While the pair built up their holdings in the aluminum business before and after the war, they did not neglect the development of the paper business. Increasingly, the brothers became involved in paper production and related ventures, executing their boldest moves following the conclusion of World War II. In 1950, they completed their first major acquisition when they purchased the Richmond Pulp and Paper Company in Bromptonville, Quebec. The acquisition gave the Kruger business a paper production plant that would serve as the company’s flagship paper facility for the remainder of the century, touching off decades of energetic physical growth, as the two brothers narrowed their sights on the paper business. It was during this period that Gene Kruger’s strategy for growth was most discernible. As the company grew exponentially from the 1950s forward, it did so by purchasing old pulp and paper mills and then revamping those facilities into modern production facilities. This approach predicated the company’s expansion strategy for the decades ahead, remaining a key tenet of Kruger Inc.’s development even after the departure of Gene and Bernard Kruger.

During the 1950s, the Kruger brothers went on an acquisition spree, quickly adding to the breadth of their paper business. Among the companies acquired during the decade were Matane Pulp& Paper Company in Matane, Quebec, Sherbrooke Paper Products Ltd. in LaSalle, Quebec, which produced corrugated boxes, and Montreal-based Turcot Paperboard Mills Ltd. By 1961, the Krugers owned ten pulp and paper companies and ranked as a leading paper producer in their home province of Quebec; their nonpaper business interests, meanwhile, were gone. As the brothers increased their stake in paper production, they concurrently began shedding businesses that did not add to their stature as a paper producer. By the beginning of the 1960s, all of the nonpaper operations had been divested (the last business was sold in 1961), leaving the Krugers entirely dependent on yet strongly supported by the growing roster of pulp and paper facilities composing their growing empire.

Expansion continued under the aggressive and ambitious tutelage of Gene Kruger throughout the 1960s and 1970s, both within Canada and abroad. In 1955, the Krugers acquired 50 percent interest in, and then later purchased the balance of, Papeles Venezolanos C.A., a Venezuela paper mill company. Although this property was organized as a company separate from Kruger, Inc., the move to foreign shores established a precedent. In the late 1960s, the Krugers purchased Italy-based Velcarta S.p.A., a one-machine mill that produced wrapping tissue. On the domestic front, a second box production plant was erected in Rexdale, Ontario in 1964, and a second paper mill was added in 1973 through the purchase of Three Rivers Pulp and Paper Company. The paper mill, located in Trois-Rivieres, Quebec, represented a significant addition to the company’s operations, ranking as important as the purchase of the Bromptonville plant 23 years earlier.

By the time the Trois-Rivieres plant was acquired, Kruger Inc. had completed a sweeping modernization program. Many of the company’s facilities were thoroughly revamped to meet the mounting need for paper products, particularly for newsprint, which ranked as Kruger Inc.’s single most important product. The investment in the Bromptonville plant represented a telling example of the company’s commitment to establishing itself as a large-scale paper producer. It also provided a glimpse into Gene Kruger’s strategy to purchase old plants and enhance their technological capabilities and capacities. When the Krugers purchased the Bromptonville newspaper mill in 1950, the plant contained one machine that could produce roughly 9,000 metric tons of newsprint per year. By 1973, after years of investment, the plant housed three machines capable of producing 168,000 metric tons of newsprint per year.

After the modernization program was completed, Kruger Inc., to a certain extent, was beginning anew; a gradual change in the company’s leadership added to the sense that a new chapter in the company’s history was beginning. In 1968, Gene Kruger’s son Joseph Kruger II was appointed to Kruger Inc.’s board of directors, marking the arrival of the third generation of the Kruger family to the company’s upper ranks of control. By the mid-1970s, Gene was giving his son more and more responsibilities and, according to Bernard, Joseph began to wield this new-found power freely, occasionally stepping on his uncle’s toes as he did so. Before long, Bernard began to feel uneasy about the situation at Kruger Inc. In his mind, his position was being eroded by his nephew. Bernard Kruger no longer knew where he stood and saw no resolution to the new power dynamics reshaping Kruger Inc.’s executive ranks without creating considerable friction among family members. In 1979, Bernard Kruger left the company of which he had been an integral part for 51 years, opting to retire rather than engaging in a power struggle at the company’s headquarters.

Family Feud Erupts in the 1980s

Bernard’s departure did not ease the troubles that began brewing in the late 1970s. The uneasiness remained, particularly in Bernard’s mind, as he began to wonder exactly how much he owned of the family’s various ventures and what his own children could expect as an inheritance. Inquiries into these matters caused Gene to take umbrage, and quickly the dispute turned into a battle waged in the courts and in Kruger Inc.’s boardroom. In 1982, a legal fight over the central issue of Bernard’s family’s rights as minority shareholders was brought to the courts. Bernard charged that his brother and representatives had attempted to bilk his family out of its fair share of Kruger Inc. and other offshore ventures. Further, Bernard contended that Gene’s family, who owned 61 percent of Kruger Inc.’s shares, was not paying out sufficient dividends, that he had stopped receiving his $40,000-per-year pension, that his secretary had been fired, and that his company credit cards had been cancelled. As the owner of 32.5 percent of Kruger Inc.’s 11 million shares, Bernard’s family asked the courts for compensation for years of low dividend payments, a demand that Gene and his son found specious. Although Gene’s side of the family kept their comments to the press to a minimum, flatly stating that Kruger Inc.’s dividend policy was “moderately reasonable,” the family feud was the stuff of headlines. The bitter battle brought the lives of a family that had shunned the scrutiny of the public eye for decades into the open.

Amid the turmoil, however, Kruger Inc. continued to perform admirably. Despite board meetings that Bernard’s son David, a Kruger Inc. board member, compared with “the way Lee Iacocca described Ford meetings under Henry Ford,” the company reigned as a dominant force in the Canadian forest products industry. The dispute between Gene and Bernard was eventually settled during the late 1980s in a secret, out-of-court deal in which Joseph agreed to buy Bernard’s 32 percent share in the company for $99 million, but Kruger Inc. never missed a step throughout the decade. While tempers were at their hottest during the early and mid-1980s, the company had secured a major contract with Gannett Supply to provide newsprint for the publisher’s new newspaper, USA Today. The deal was significant not only for the volume of business it represented but also because USA Today required the most demanding quality specifications in the newsprint business, which meant that Kruger Inc. could count itself among the most sophisticated newsprint producers on the continent. The newspaper’s four-color pages were the first in the industry, and Kruger Inc. was one of the first newsprint suppliers to qualify as a supplier. By the late 1980s, when newspaper publishers were rapidly moving toward color printing, there was a dearth of qualified newsprint mills capable of meeting the expected demand. There were, in fact, only eight newsprint mills in North America that qualified as suppliers for USA Today and Kruger Inc. operated two of them.

Kruger Inc.’s strong technological lead over many of its North American competitors during the late 1980s served the company well as it entered the 1990s. Newsprint production would continue to be the company’s mainstay business in the decade ahead, but, with Joseph Kruger at the helm as chairman, Kruger Inc. also made an aggressive effort to strengthen its position in the recycling business, specifically in its capacity to produce recycled newsprint. Toward this end, the company purchased Manistique Papers Inc. in February 1991 for roughly $68 million. Located in Michigan, the mill obtained through the purchase accelerated Kruger Inc.’s foray into recycled newsprint production and strengthened the company’s presence south of the border, where the bulk of its newsprint shipments were delivered. Next, the company acknowledged its need to develop further its operations in the United States by forming a U.S. subsidiary in 1992. The subsidiary operation, located in Albany, New York, was established to generate baled wastepa-per for use by the company’s linerboard and newsprint mills in Quebec. Concurrent with this move, the company also opened a $55 million deinking facility at its mill in Bromptonville.

By the mid-1990s, Kruger Inc.’s strength was considerable. The company’s largest market share continued to be in newsprint production, which was generated by ten machines capable of producing approximately 980,000 tons of newsprint per year. All totaled, the company’s facilities were capable of producing 1.8 million metric tons of paper products per year, making Kruger Inc. the largest, privately owned paper products company in Canada. Supported by this mammoth production capacity, Kruger Inc. stood well-positioned for future growth in the late 1990s and continued vitality as it prepared for its second century of business.