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Diving overview:
Dairy giant Danone has accused kefir maker Lifeway Foods of allowing CEO Julie Smolyansky to “engage in self-waste and destruction of value.” Danone said in a Dec. 30 letter that it plans to file a lawsuit accusing Smolyansky and the rest of Lifeway’s board of directors liable for breaching their fiduciary duties to shareholders.
The lawsuit arose from a Lifeway board meeting in which Chairman Smolyansky recently granted the CEO approximately 300,000 new shares of Lifeway stock. Danone claims this violates a contract it signed with Lifeway 25 years ago that required Danone’s consent, which it did not grant in this case. Danone owns 23.3% of Lifeway’s business.
- The latest blow came with Danone’s offer to acquire Lifeway, most recently raising its offer to $27 per share in November. Meanwhile, Illinois-based Lifeway has been embroiled in a bitter family dispute for years between its CEO and her relatives.
Dive Insights:
Danone said the decision to grant Smolyansky additional shares represents the board’s latest effort to prioritize “the CEO’s personal interests over the interests of the company and other shareholders.”
The food manufacturer claimed Lifeway had “already wasted millions of dollars of shareholder money” on Smolyansky. Danone pointed out that Lifeway spent money to support lawsuits against her family, pay her a “massive” compensation package and pay her husband a six-figure salary to take on the position of chief of staff.
Danone said the new shares were granted after LifeWay amended the CEO’s employment agreement “to provide Mr. Smoljansky with significant severance pay and other benefits.”
“Seeing the increased likelihood of a sale of the company, the board appears to have approved a value-destroying gift program for the CEO in blatant violation of the shareholder agreement,” Danone said in the letter.
Lifeway claims its shareholder agreement with Danone is invalid because it violates Illinois law. “We will seek all available remedies to enforce Illinois law and invalidate the contract,” the company said. Danone insisted the contract was still valid and urged Lifeway to withdraw the “inappropriate” share issuance.
“In light of Danone’s unsolicited and opportunistic proposal to acquire Lifeway, the company and its external advisors are examining the relationship between the parties and assessing how best to protect the interests of the company and its shareholders,” Lifeway said in a statement. He said.
Danone is no stranger to producing healthy dairy products, with its yogurt portfolio including probiotic-focused Activia and low-sugar Too Good yogurt. The addition of Lifeway’s fast-growing, better-for-you products will complement these and other products already in Danone’s portfolio. We will also be able to leverage our strengths, including our global scale, to further grow Lifeway’s products.
Lifeway’s portfolio of kefir and fermented probiotic products has grown rapidly in recent years as consumer interest in gut health, proteins and probiotics increases. It recorded its 21st consecutive fiscal quarter of growth, and revenue is expected to increase from $94 million in 2019 to $185 million and $186.5 million in 2024.
Lifeway said in a statement that it “rejected Danone’s offer because it seriously underestimated the value of the company.” Lifeway added that it is not opposed to a sale at a price that better reflects the value of the business. Lifeway also noted that its board of directors continues to support its CEO and that her leadership is “critical to ensuring the success of the company’s standalone business plan.”
