Lifeway Foods has maintained the shareholder agreement the company has with investor – and suitor – Danone is “invalid”.
The kefir maker, a takeover target for Danone, responded to claims from the French giant that it had breached an investor deal between the two companies.
Late last month, Danone wrote to Lifeway claiming the US business and its CEO, Julie Smolyansky, had violated an agreement dating back to the Activia maker’s investment in the company.
Danone said Lifeway’s decision to award Smolyansky nearly 300,000 shares broke the deal and warned the company it was preparing litigation.
However, Lifeway insists the agreement, which dates to 1999, is void under state law in Illinois, where the group is based. “An agreement that is invalid does not become valid simply because both parties follow its terms for a period of time, no matter how long. The company intends to pursue all available remedies to enforce Illinois law and nullify the agreement,” Lifeway said in a statement yesterday (6 January).
In September, Danone, which already owned just over 23% of Lifeway, proposed acquiring the rest of the business for $25 per share – a 59% premium over the stock’s then-three-month volume weighted average price.
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By GlobalData
Lifeway rejected the offer on 5 November, arguing the bid undervalued the business. Danone raised its offer to $27 per share but that was also rebuffed.
However, later in November, Lifeway said its board was “not opposed” to a potential sale of the company.
In Danone’s letter to the Lifeway board, deputy CEO Shane Grant said the business had “belatedly acknowledged that it could not continue to stave off value-maximising proposals and conceded that it would be willing to consider a sale of the company”. He said: “To date, Danone has seen no convincing evidence that this is the case.”
The award of shares to Smolyansky was a move to “destroy shareholder value and ignore Danone’s long-established contractual rights”, Grant added.
“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.”
Lifeway continues to insist Danone’s offers for the business “severely undervalues” the group.
However, in its statement yesterday, Lifeway said its board “reiterated that it is not opposed to a sale at a price that more accurately reflects the true value of the company”.
“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 issues preliminary Q4 sales
Alongside the statement, Lifeway issued “unaudited preliminary” net sales for the fourth quarter of last year. It said those sales were between $45.1m and $46.6m. In the final three months of 2023, Lifeway generated net sales of $42.1m.
The company forecasts its “preliminary unaudited net sales” for 2024 will be in the range of $185m to $186.5m, versus $160.1m in 2023.
“Danone is opportunistically determined to push through an inadequate offer and in the meantime, Lifeway has continued to execute on its strategy and is delivering substantial value for shareholders,” Smolyansky, Lifeway’s chairwoman and CEO, said.
“In addition, for the full year 2024, Lifeway’s net sales are projected to range between $185m to $186.5m compared to $160.1m in 2023, which demonstrates the efficacy of Lifeway’s business strategy and execution.”
Smolyansky’s mother and brother hold a combined stake in Lifeway of just short of 30%.
In 2022, Ludmila and Edward Smolyansky called for Julie to step down and for Lifeway to begin pursuing “strategic alternatives”.
The issue was said to have been resolved the following August, as Lifeway agreed to review strategic alternatives, as well as find a financial advisor and new replacements for its board.
However, the family feud was rekindled last year after the pair set up Pure Culture Organics, which sparked a legal dispute between the Smolyanskys.
In April, Lifeway filed a claim against Pure Culture Organics, claiming it had stolen proprietary information to set up the business. Lifeway ended the lawsuit in June.
Ludmila and Edward have backed Danone’s moves to buy Lifeway.
