Dive Brief:
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Dairy giant Danone accused kefir maker Lifeway Foods of allowing its CEO Julie Smolyansky to “engage in self-dealing waste and value destruction.” Danone said in a Dec. 30 letter it plans to file a lawsuit accusing Smolyansky and the rest of Lifeway’s board of being liable for breaching their fiduciary duties to shareholders.
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The suit comes as Lifeway’s board, which Smolyansky chairs, recently granted the CEO nearly 300,000 new shares of Lifeway stock. Danone contends this violated an agreement reached between it and Lifeway more than 25 years ago that required Danone’s consent, which it did not grant in this case. Danone owns 23.3% of Lifeway’s busisness.
- The latest salvo comes as Danone has offered to buy Lifeway, most recently increasing its offer in November to $27 per share. Illinois-based Lifeway, meanwhile, has been embroiled in a bitter family dispute for years between the CEO and her relatives.
Dive Insight:
Danone said the decision to grant Smolyansky additional shares represents the board’s latest effort to prioritize the CEO’s “personal interests to trump those of the company and its other shareholders.”
The food manufacturer contended that Lifeway “has already wasted millions of dollars of the shareholders’ money” on Smolyansky. Danone pointed out that Lifeway has spent money to support her litigation against her family, to pay her “outsized” compensation package and to pay her husband a six-figure salary to serve as her chief of staff.
Danone said the granting of new shares comes after Lifeway amended the CEO’s employment agreement “to lavish Ms. Smolyansky with an outsized severance and other benefits that will further dilute the public shareholders in any change-of-control transaction.”
“Having seen the heightened potentiality of a sale of the company, the board has seemingly greenlit a value-destroying gifting program for the CEO in blatant violation of the Shareholder Agreement,” Danone said in the letter.
Lifeway claims the shareholder agreement it has with Danone is invalid because it violates Illinois state law. The company said it intends to “pursue all available remedies to enforce Illinois law and nullify the agreement.” Danone argues the contract remains in place and urged Lifeway to “rescind the improper” issuance of stock.
“Given Danone’s unsolicited and opportunistic proposal to acquire Lifeway, the Company and its outside advisors are looking at the relationship between the parties and assessing how to best protect the interests of the Company and its shareholders,” Lifeway said in a statement.
Danone is no stranger to producing healthy dairy products, with a yogurt portfolio that includes probiotic-focused Activia and low-sugar Too Good yogurts. Adding the fast-growing Lifeway and its better-for-you offerings would complement these and other products already in Danone’s portfolio. It also would be able to tap into its strengths, including its 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, protein and probiotics intensifies. It has posted 21 consecutive fiscal quarters of growth and has increased sales from $94 million in 2019 to a projected $185 million to $186.5 million in 2024.
Lifeway said in its statement that it rejected Danone’s offer because it “severely undervalues the Company.” Lifeway added that it does not oppose a sale at a price that better reflects the value of its business. In addition, Lifeway said its board continues to back its CEO and notes that her leadership “is critical to ensuring the success of the Company’s standalone business plan.”
